Do your homework before renting out your home.
Becoming a landlord for the first time involves getting up to speed on laws and rules related to landlord-tenant arrangements. Renting out a house requires all of the planning, budgeting and expense tracking of any other business to ensure that it is done profitably and that income taxes are calculated correctly. Take the time upfront to understand what renting your house entails.
Instructions
1. Review local and state regulations. Each state has its own laws that dictate the rights and responsibilities of landlords and tenants. Important points to understand include how many people you can rent to, what rights the landlord has to enter the premises, who must pay for repairs and damages to the house, and any limitations on rental increases. Local regulations deal with fire code standards, zoning and parking requirements. Before committing to rent your house, ensure that the rules allow for you to do so.
2. Prepare a rental budget. To make a profit from renting your house, the rent you charge first must cover both the recurring expenses of the property, such as mortgage payments and property taxes, as well as unusual expenses such as furnace replacements and flood damage. Document all the regular expenses and estimate how much will need to be spent on repairs and maintenance. Compare the expenses to the estimated rental income. Analyze the potential income and compare to other similar properties to see if what you plan on charging in rent is in line with market rates.
3. Decide whether you will use a property management company. A property management company provides services to landlords, including coordinating emergency repair services, collecting rent and cleaning vacant rental units. Without a property management company, you will be on-call 24 hours a day to handle emergencies or any threats to the property. Most management companies charge a monthly retainer fee and an hourly fee for any extra time spent. If you choose to hire one, include the expense in your rental budget.
4. Advertise the property. Most local newspapers have "Houses for Rent" sections. You also can advertise on your local online sales websites. In your advertisement, list the main features of the house along with the rental rate. Disclose when the property will be available for rent as well as any deposits required. If you will require the prospective tenant to provide references, include that stipulation. Provide a deadline for rental applications so that you can spend time reviewing applications to find the right tenant.
5. Prepare a rental contract. Once you have accepted a tenant application, draw up the rental contract based on the laws in your state. Many state websites have templates that you can customize. Once both you and the tenant sign and date the agreement, it is binding on both of you, as long as it meets state rental law. The contract will stipulate the tenants' rights, including the amount of notice they need to give you when they want to move out, and what they need to do to request repairs or upgrades to the property.
6. Set up a separate bank account. While you are not legally required to have a separate bank account for your rental activities, it is a sensible idea for tax purposes. A separate account makes it easier to track your rental income and deductible expenses for tax purposes.
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