Do you have an unused second home or a property on the market that hasn’t sold yet? You can supplement your income through renting and eliminate the stress of having an unused home on the market for long periods of time. Before you put an ad in your local classifieds, consider these six elements of renting out a property.
1. Property Status
Whether you are considering renting out a single portion of the home you still occupy or a separate property, you will likely need to change your property status. Contact your mortgage company. If you’ve moved out, you will need to inform your mortgage provider that you are no longer living in the home. Request permission from your mortgage lender and local municipality to rent out the property. You may need to pay a fee when making the agreement.
2. Long-Term Goals
You have three options when renting out: 1) renting a portion of your home, 2) setting up a long-term rental system, or 3) focusing on short-term tenants. If you have extra room, you may choose to put a room or section of your house up for rent. This option can help you pay for renovations or supplement your income after a big family change such as a child going away to college or a divorce. Another short-term solution is catering to the needs of vacationers and tourists. If your city hosts seasonal events such as festivals, sports competitions, or conferences, you may be able to list the property for rent for a weekend or a few months.
This is a good option if you aren’t up for the rigors of long-term property management or only need to fill the space until you are able to sell. If the market is on a downturn, you aren’t ready to part with a property, or you are having a hard time finding a buyer, consider converting the home into a long-term rental. Long-term renting allows you to continue deducting the interest on your mortgage and property taxes from your federal income tax.
3. Insurance
Rental property insurance is as important as homeowner’s insurance or car insurance, say the professionals at Anthony Clark Insurance Ltd. From Calgary to Chicago there are companies that can help you determine which policies will work best for your situation. In addition to the structural insurance and personal belongings insurance provided by homeowners’ policies, rental properties will need coverage for damage caused by tenants, loss of income, and liability.
4. Costs
Before putting up a listing, consider the costs of becoming a landlord. Because rental property insurance extends beyond the basic coverage of a homeowners’ policy, it can be more expensive. The home will need to be inspected and any dangerous or unseemly damages will need to be repaired before you begin looking for tenants. Establish a budget for these expenses, as well as the asking price for rent, utilities, security deposit, and renter’s fees.
5. Management
If you don’t have a background in property management, you may want to enlist the help of a professional management company. A certified property management company can help you determine what you should be charging for rent and the best screening method for prospective tenants.
A management firm will also help you make sure that your paperwork is filed and all transactions are properly recorded and reported. Most management firms charge about 10% of monthly rent in return for their services. Check out First Team Property Management to learn about how we can help.
6. Screening
Establish a screening process before you begin showing your property. Check for solid credit and rental history, proof of regular income, and a criminal record. If you decide to hire a management firm, they will be able to suggest other steps you may want take to ensure that you are renting to trustworthy individuals who will be able to keep up with the cost of rent and any other fees.
Talk to your financial advisor or real estate agent about whether renting out your property is your best option. Call 888-870-1142 or email us at clientservices@firstteam.com and we’ll connect you with an expert to help you make a smart real estate plan.
This guest post was written by Anita Ginsburg. Anita is a freelance writer from Denver, CO and often writes about home, family, real estate and finance. A mother of two, she enjoys traveling with her family when she isn’t writing.
