Home > Moving? Considered Being a Landlord & Converting Your Home into a Rental?
Leasing Issues

Moving? Considered Being a Landlord & Converting Your Home into a Rental?

by Editor | ezLandlordForms

There are many reasons you may need to sell your current house.  Your family may be outgrowing your starter home, or you may need to move to another city for work, or maybe you’re just ready for a new adventure.  Before you put your home on the market for sale, have you considered being a landlord?

If you’re thinking of converting your home into a rental property, here are some tips to make the transition smoother.

Crunch your Numbers

Before doing anything else, sit down and figure out your numbers.  How much could you sell your home for?  What is the market rate for rent?  How much will your yearly expenses be?  Don’t forget average annual costs for maintenance, vacancy and property management.  Even if you intend to manage the property yourself, still set aside 10% of annual rents as a cost – the cost of your time.  Will the property be cash flow positive?

Keeping your current home as a rental is a great way to ease into becoming a landlord, but it may or may not be the most profitable option.  Sometimes selling your current home and investing the proceeds on a different income property is a better investment, or investing in a tax-deferred retirement account, or in a business you’re launching.  Do the math and base your decision on facts, not emotion.

Build Your Team of Experts

Once you decide to go ahead and rent out your current home, there are many professionals who can help you become a successful landlord.  A real estate agent or property manager can help you screen tenants, establish rent rates and advertise your rental.  Property managers can also take over collecting monthly rent, dealing with tenants and handling emergencies.

Accountants can help you better understand the tax advantages of becoming a landlord.  They can also advise you on tax planning and preparation.  You will need to report rental income on your yearly income taxes.  Fortunately, you can deduct almost every conceivable expense associated with being a landlord.  You will need to learn about depreciation and the tax implications of converting your property into a rental.  There are forms to fill and pitfalls to avoid, which an accountant can help guide you through.

Learn the Law

All U.S. states and Canadian provinces have their own unique landlord-tenant laws.  Leases, deposits, evictions and tenant rights can vary from one state/province to the other, so be sure to learn your local laws, and our summaries of landlord-tenant laws are a good place to start.

Mortgage Restrictions

Mortgage note agreements often have an occupancy clause, where you likely specified you intended to occupy the home yourself.  If you change the occupancy without informing the bank, you could be in violation of the original note agreement.  The lender could then call the loan and demand it be paid off within 60 days.  This is a risk most aspiring landlords are willing to take, but it is still important to understand it and be prepared.

Also check for any possible restrictions if you are part of a homeowner’s association or live in a condominium.  Some may require the board to approve tenants; others have rules against leasing altogether.

Prepare Your Lease and Application Documents

In order to properly screen potential tenants, you need them to fill out a rental application.  Your form should include applicants’ names, employment and income information.  You should ask for references and permission to do tenant criminal and credit checks.  Also ask about past rental history, such as landlord information, evictions and bankruptcies.

To protect yourself and your property, you need a well-written lease agreement.  Make sure to clearly indicate which expenses your tenants will be responsible for, such as heat, electricity, garbage removal and lawn maintenance.  Lease agreements must include all necessary legal clauses and disclosures, and should always be state-specific/province-specific.

Prepare the Property

Make any needed repairs before putting your property on the rental market.  Make sure it is in sparkling condition, with a fresh coat of paint and a professional-grade cleaning.  Remove any clutter and make the property as attractive as possible.

Insurance

Notify your insurance broker that you are converting your residence to a rental property.  You will need to change your coverage to landlord coverage, which will no longer cover the belongings and furniture, but do generally include limited lawsuit liability coverage.  Encourage (or perhaps require) your tenants to obtain renters’ insurance for their belongings.

Network

Reach out to friends, family and coworkers who are landlords.  Ask them what worked for them and what didn’t.  Real estate investors, property managers and other landlords are a great source of information and recommendations.

When it comes to being a landlord, there’s no need to reinvent the wheel.  Learning from those with experience can help you make good decisions and make your real estate investments successful from the beginning.

Related Reading:

New Landlord Guide

Related Articles

0 0 votes
Article Rating
Subscribe
Notify Of
guest
0 Comments
Inline Feedbacks
View all comments
0
Would love your thoughts, please comment.x
()
x