What questions should you ask yourself when thinking about renting out your property?
Renting out your house can be a great way to generate income, but it requires careful planning and consideration. Here are the top 10 things you should think about:
1. Legal and Regulatory Requirements
- Landlord-Tenant Laws: Familiarize yourself with local and state landlord-tenant laws. These regulations cover things like eviction procedures, tenant rights, security deposits/fees, and rent increases. Utah Landord Tenant Law Website.
- Licensing & Permits: Some areas require a rental property license or permit, so check with local authorities.
- Fair Housing Laws: Be aware of federal, state, and local fair housing laws to avoid discrimination based on race, gender, family status, disability, etc.
2. Setting the Right Rent
- Market Rates: Research the going rent rates in your area for comparable homes to ensure your rent is competitive and fair.
- Consider Your Costs: Calculate mortgage payments, property taxes, insurance, maintenance, and any other expenses to ensure you’re covering your costs and generating profit.
- Rental Increases: Understand how often and by how much you can legally increase rent.
3. Tenant Screening
- Credit Check: Ensure potential tenants have a good credit history to minimize the risk of late payments.
- References & Background Check: Verify rental history, check for criminal backgrounds, and request references from previous landlords or employers.
- Income Verification: Ensure the tenants can afford the rent by confirming their employment status and income.
- Reducing your resident turnover rate will increase your ROI. Using the three previously mentioned points will ensure your highest probability of placing long term residents.
4. Lease Agreement
- Clear Terms: Draft a detailed lease agreement that includes rent amount, due date, late fees, maintenance responsibilities, rules about pets, smoking, and guests, and the lease duration.
- Security Deposit/Fee: Decide on the amount and terms for the security deposit. This is usually refundable at the end of the lease unless damage occurs. This is another aspect of the lease where consulting a lawyer can be beneficial. The term “Deposit” can have certain connotations if a particular amount is to be “Non-Refundable”. If there is any amount you want to be automatically withheld for any reason, such as carpet cleaning or pet damage, ask your lawyer about using the verbiage “Fee” instead.
- Renewal Terms: Define how lease renewals will work, including rent increases and notice periods.
5. Property Maintenance
- Maintenance Responsibilities: Decide whether you will handle repairs and maintenance yourself or hire someone to do it. Regular Inspections: Schedule periodic inspections to ensure the property remains in good condition and that tenants are following the lease.
- Emergency Repairs: Have a plan for dealing with emergency repairs, such as plumbing or electrical issues, and inform your tenants about how to handle them. It will be a good idea to create a network of contacts you trust in a few different industries so you’re prepared when repairs are needed.
6. Insurance
- Landlord Insurance: Consider landlord insurance, which is different from regular homeowners insurance. It covers things like property damage, liability, and loss of rental income.
- Tenant Insurance: Encourage tenants to get renters insurance to cover their personal belongings and liability.
7. Tax Implications
- Rental Income: Rental income is taxable, so keep good records of your income and expenses, including repairs, maintenance, and property management costs.
- Deductions: You can generally deduct certain expenses, like mortgage interest, property taxes, insurance premiums, and maintenance.
- Consult a Tax Professional: Consult with a tax advisor to ensure you’re complying with all tax regulations and maximizing any deductions.
8. Communication with Tenants
- Clear Expectations: Set clear communication channels with tenants for reporting issues, maintenance requests, and emergencies.
- Professionalism: Treat the rental relationship as a business. Respond to tenant inquiries promptly, maintain professionalism, and be consistent with your policies.
9. Long-Term Considerations
- Property Appreciation: Consider how renting your property might impact its long-term value. Some landlords sell their property once it has appreciated, while others continue renting it out.
- Exit Strategy: Think about your long-term plan for the property. Will you want to sell it eventually, or do you plan to keep renting indefinitely?
- Renovations and Upgrades: Keeping your property up to date will help you get better residents and stay on the high end of market rate when setting your rent price. We recommend investing 10% of your property’s worth back into renovations each year to stay above the curve.
10. Property Management
- Self-Management vs. Hiring a Property Manager: Decide if you want to manage the property yourself or hire a property management company. If you have multiple properties or don’t want to deal with day-to-day tasks, hiring a manager might make sense.
- Fees for Property Management: If you hire a property manager, factor in their fees (typically 8-12% of the rent) and ensure you’re still making a profit.