Redecorating your house before renting can help justify a higher rental rate.
If you are moving or traveling for an extended period of time, renting out your house is one way to keep your options open. Renting allows you to keep a house you may want to return to while someone else pays the mortgage. There are several things you need to know about renting your house in order to make the process as smooth and worry-free as possible.
Management
One of the first things you need to do is decide whether you will manage the rental yourself or have a property manager handle it. Managers charge a fee, so you will earn more money by managing the rental yourself. However, if you are going to be moving out of town, it may be easier to have a local agent manage the property. If you are doing it yourself, you will also need to be up-to-date on all the state tax and property laws that will apply to you. When hiring a property manager, check with the National Association of Residential Property Managers (see Resources) to make sure the manager is licensed.
Insurance
Once you rent out your home, you can cancel your homeowner's insurance policy and replace it with rental insurance. Make sure your rental insurance covers damages to the home as well as legal costs and loss of rental income. This generally costs less than homeowner's insurance. You may also want to require your tenants to have their own renter's insurance to cover losses to their personal property and personal liability.
The Lease
You should have a written lease that you and your tenants both sign. The lease sets out the rights and obligations of each party. The laws in each state are different, so you need to make sure the lease form you use is specific to your state. A real estate lawyer can help you draft a lease that includes everything you need. Leases generally include sections on the term of the rental, such as month-to-month or 12 months; the date when rent is due; who is responsible for upkeep and repair costs; late penalties; whether smoking and pets are allowed; eviction terms; and any homeowner association rules and dues.
Taxes
Any money you make on your rental must be reported on Schedule E of your tax return and will be treated as income. Some of your expenses are deductible, such as the mortgage interest, management fees and insurance. You can also deduct depreciation of the property and the cost of any repairs, although not the cost of any improvements that add value to the home. You may want to check with an accountant to make sure you are taking the correct deductions for your particular situation.
Finding a Tenant
Possibly the most important thing about renting your house is choosing the right tenant. You want someone who will pay the rent on time and look after your house. If you are managing the property yourself, you can find tenants by advertising in local papers or through word of mouth. Anyone who applies should complete an application form and agree to a credit and reference check. You will need their signed approval in order to perform a credit and criminal records check. If you have a professional property manager, he will handle the tenant search and checks.
Preparation and Upkeep
Before you rent out your home, you will need to clean the house and make sure everything is in working condition. Check in local papers to see what similar properties are renting for in your neighborhood. You will need to charge a price comparable to similar properties. You may need to repaint and redecorate in order to get the best price. Keep in mind that, although you are only obliged to perform repairs that affect the safety of your property, tenants will tend to be more loyal if you keep the house in good condition.
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