The amount of American’s renting a home is higher now than it has been in over 50 years, accounting for 36.6% of households.With numbers like these, experts predict that 2021 is a highly beneficial time to start investing in real estate and earn a passive income from property rentals. If you already own a home or have been pondering the market, the likelihood of a successful renting experience is stacked heavily in your favor.However, the logistics of renting out a house aren’t as simple as signing the papers and walking away. Before you allow your first tenants in, there are a few rules and processes you’ll need to familiarize yourself with.Lucky for you, we’ve gathered the best tips and tricks for first-time landlords. Follow along to learn how you can hit the ground running and start renting out your home for extra income.
- Calculate Finances
Before you can start looking for suitable tenants, you’ll need to determine what finances will be involved in the rental. To set your rate, you need to know exactly what costs should be covered and how much you can realistically ask.Are you buying a house to rent out? What will your mortgage repayments look like, and what are the property taxes for the area?If you already own your home, you’ll likely have a better idea of these figures and can calculate annual expenses from your experience. Elements that will impact your rental rate include:
- Mortgage payments
- Property tax
- General maintenance and repairs
- Insurance
- Average utilities (if included)
You’ll need to charge more than the sum of these factors to generate a profit. Do some research in your area to determine the going rate. This will give you an idea of how high you can raise your price without losing interest.
- Consider Outsourcing Property Management
Managing a rental property isn’t a one-and-done type of job. Some tenants may be easy to deal with and make minimal contact. However, others can be a headache you wish you could evict.If you aren’t ok with taking calls in the middle of the night when a storm knocks out the power or stopping by to check on the dishwasher that keeps overflowing, it may be a good idea to hire a property management company.These companies handle the complaints and requests and filter out small issues, so you don’t have to. You’ll still be involved in the property rental, receiving updates or maintenance inquiries. Still, your communication will be with the professional who takes care of your home rather than the renters themselves.
- Use a Rental Application
When renting out a house for the first time, it can be overwhelming to organize all the applicable documents. Many landlords feel that they can get enough of an idea of applicants during the inspection process to determine if they are a quality fit.Don’t fall into this over-confident and under-educated approach. The amount of time you spend with potential renters in a walk-through is not nearly enough to determine if they will be good tenants.Instead, have any interested parties fill out an application that includes:
- Names of all renters
- Social security number
- Phone number
- Date of birth
- Previous addresses
- Current and past employers (name, hire date, income, contact info)
- Release of information statement
- Signatures
You’ll be able to find basic templates online to work from, or you ask your property manager to use their standard application.
- Conduct Background and Credit Checks
Once you’ve gathered information about their employment situation and social security number, you can use these details to check in on potential tenants.Run a credit check on their details to be sure you won’t be left chasing your tenants for rent each month and confirm their employment details. If possible, have them provide you with recent paystubs to confirm adequate income.Ask for at least three rental references and touch base with each one. Talking to past landlords about their experience with the tenant will give you a solid idea of what to expect. Inquire about the condition of their last property when they departed and how long they stayed for.It should come as no surprise that having a renter stay long-term is far more desirable than repeating the process every 6 months.
- Install an ADU
An ADU or accessory dwelling unit is the term used to describe a second house or apartment on your plot of land. These can be a fantastic option for earning a little extra income without having to leave your home.In fact, if you are ready to downsize but love your location, you could even move into the ADU and pursue renting out your house. This can be an incredibly convenient way to stay on top of the property management and ensure your home is properly cared for by the tenants.You can customize these units for your needs and even purchase pre-built ADUs to move onto your property. Find reputable companies by searching for ADU services San Jose and getting in touch with specialized professionals.
- Know the Tenant Laws
Familiarize yourself with the laws and regulations to gain insight on how to rent a house in your market and what you can and cannot do.Even if you intent to rent privately, your tenants do have rights. Neglecting to review these laws could land you in serious trouble or even unable to recover your home from rouge tenants.If you are unsure of what documents to put in place to ensure legal protection and clarity, seek advice from a real estate lawyer or property management company. And, of course, never feel pressured to waive the legal documents to satisfy a tenant. Contracts are in place to protect both you and your tenant and should be a non-negotiable requirement.Renting Out a HouseNow that you know the key elements to consider when renting out a house, you can set forth with confidence and step into your first landlord position. From setting your price to ensuring a fully legal transaction, you can use these tips and tricks to maximize your experience when renting out a house for the first time.Want to know more about the rental experience and what to expect? Check out our other articles to learn everything you need to know when entering the world of rental income properties.