If you are thinking about renting out either your primary residence or an investment property, we've put together a “Top Ten” list of important things to consider before putting your home up for rent. Keep in mind that state and local laws can change from place to place, so whether your property is in Sarasota, Florida or Seattle, Washington, you should do your homework. Also, if you plan to rent out a condo, check with your condo association regarding rules and policies regarding rentals; in some cases it may not be allowed.
1. Get proper insurance.
If you decide to rent a home that was either a primary residence or a vacation home, the insurance policy you currently have will no longer apply. Make sure you talk with your insurance agent and get the proper coverage. Rental home insurance is very different than other types of home insurance and covers things such as medical and legal expenses, and even covers loss of income should the home need extensive repairs. One thing it does not cover is your tenants' property. It is their responsibility to purchase renters insurance to cover their losses.
2. Determine what your property costs to own and maintain.
Make an itemized list of every expense you incur from owning the property. Start with the obvious (mortgage, taxes, insurance, maintenance, utilities, condo fees, and property management costs), but don't forget to list those expenses that only occasionally crop up, such as legal help and tax preparation. Also, if one or more of your appliances or the air-conditioner seems to be on its last leg, you might want to go ahead and add the cost of replacement and installation to the list. Murphy's Law usually applies here ...
3. Determine what your rent price will be.
Take plenty of time to do research in the local rental market to see what similar homes are renting for. And don't just go by a description in an ad; actually go out and look at a few properties as if you were a prospective renter. Next, take the total of your property cost list from tip #2 and divide by 12 months. Compare this to what you determined is a fair price in the local rental market. In many cases, the rent you can expect to get for your property may be less than what it costs to own and maintain the property; however, keep in mind that you may be able to claim losses against your income tax and come out ahead if home and rental values go up in the near future.
4. Understand the law from both a landlord's and renter's perspective.
One of the biggest pitfalls of renting property is getting into a dispute with a tenant. Know your rights as a landlord, but also know what rights your tenant has. You should also be aware of the many fairness laws surrounding screening applicants.
5. Have a good lease agreement.
Nothing beats sitting down with an attorney to write up a custom lease for your property. But if this is cost-prohibitive, you can find sample leases on the Internet that you can tailor to your situation. As mentioned above, always keep in mind state and local laws.
6. Determine a fair security deposit.
Generally this is close to one month's rent, but you should be mindful that there may be state and local restrictions to what you charge. You will also want to consider if you will allow pets and, if so, what sort of limitations and pet deposit you expect. Also keep in mind that a deposit is different from a fee. If your tenant upholds his or her end of the bargain, you will have to give this back. Keep any deposits in a separate savings account away from other monies.
7. Screen applicants.
Having a process by which you can screen applicants credit history and criminal record can save you a lot of headaches and a possible eviction situation in the future. Be aware that running such checks on applicants can be expensive. Determine a fair application fee that won't deter people from applying but also won't break the bank. If you are renting out a condo, it may be that the condo association will have their own screening process that you will have to follow.
8. Record the condition of the property before renting.
Once you have settled on a tenant and the lease has been signed, it is a good idea to walk the premises with your tenant, logging its condition and even taking pictures. This process will benefit both of you, since there will be little room for disagreement about the condition of the property when the tenant moves out -- pictures don't lie.
9. Property management.
Is all this sounding like more than you want to deal with on your own? Hiring a reputable company to handle all this can make your life much easier, but bear in mind it will add a big expense to the equation. A positive here is that you can write it off on your taxes.
10. Renting property is a business
Finally, it is important to always understand that renting property is a business, and your renters are your customers. In the event you have a disagreement with a tenant, it should never be personal. Approaching your new role as a landlord with professionalism and good business sense can make all the difference in what kind of experience and success you have.
If you'd like more information about rental and vacation properties, get in touch with Julian directly via the Sarasota Property Finders Contact Page.
Sarasota Area Real Estate Specialist