People rent homes for a variety of reasons. Some just like investing in properties for rental purposes, while others are more practical, being stuck with a second home as the result of a job transfer, a death in the family, or a marriage. For whatever reason, they end up with one more home (and mortgage payment) than they need.
In today's housing market, selling that home may not even be an option. With the market so incredibly glutted, you still may end up sitting on the home for a couple of years before you can finally unload it. In the meantime, renting the home comes up as the most viable option.
Unfortunately, owning a rental home can be as much of a headache as a reward. Many people are uncomfortable with the idea of total strangers moving into a home that you have put so much money and effort into. They also wonder if they can successfully turn a rental property and avoid those nightmare scenarios that every landlord can testify to.
You should first make sure that the home is in a safe part of town, in good condition, and with a mortgage that is cheap or preferably paid off. You should also be prepared and willing to treat this endeavor like a business.
Becoming and being a landlord is not easy. It is your responsibility to provide a safe, functioning home for your tenants, and being prepared to handle any problems or malfunctions that may arise. You will also need to provide the advertising for the rental, make the selection of your tenant, and even handle the uncomfortable process of eviction if it comes to that. All of these processes are covered by law, so familiarity with the law becomes a must.
If you are uncomfortable performing these roles, you might want to consider hiring a professional property management service. If you are living in another town or state, such a move becomes a must, since you need someone on site to effectively look after your property.
You will also need to calculate your costs for handling a rental. This includes the mortgage payment, utilities, maintenance, yard work, repairs, and any other professional services the property may require.
If you are renting out your primary residence, you should decide whether to rent it furnished or unfurnished. If you go the furnished route, be prepared to deal with some damage (people will never place the same value on your possessions that you do). Remove any electronics, personal effects, or valuable heirlooms should be removed from the home and put into storage if you have no space for this.
Estimate your rental price. A competitive price should reflect other area rates for similar properties, so simply adding up your costs won't do. Check newspaper or online ads and call area property management agencies to assess the price range for properties most similar to yours.
Compare the rent you think you can get with your costs of doing business. Ideally, you should work up two profit and loss statements, a best case scenario and a more conservative version that includes pretty much everything that could possibly go wrong. Even if the numbers do not add up in your favor, there still may be legitimate reasons for hanging onto the property, such as tax-sheltered depreciation, the opportunity for future profit if values increase, or the need to hold onto a home for a family member to use later on. You may also avoid taking a worse loss by selling immediately.
Obviously, choosing good tenants is important, but it is much easier said than done. You should put together a legal rental application, one that obtains an applicant's full identity, rental history, and credit picture. If you are going to actually run a credit check, disclose that in the application and have them sign a release agreeing to such.
Make sure all previous rental information matches up with the names given, but in regards to addresses and phone numbers. Applicants using friends to pose as landlords are quite common, so make sure that you are actually talking to the person they rented from.
If you check references, don't be content with just checking the most recent landlord. Go back a couple, if possible. Earlier landlords may be more willing to talk openly than the current one.
You should also become familiar with the law concerning rental properties and acting as a landlord, as well as securing an attorney experienced in landlord-tenant issues. This will prove invaluable should you find yourself in over your head on a given issue.
Finally, don't be afraid to ask for advice. Talk to other people who have experience in managing rental properties, and learn as much as you can before hanging out the FOR RENT sign. With a little knowledge and perseverance, there is no reason that you cannot successfully become a rental mogul, even if it is only overlooking one property.
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