There are many reasons why you might want to convert a house into a rental property. Maybe you inherited a house and have no plans to live in it. Perhaps you’re moving into a larger home and want to create a passive stream of income for yourself. Whatever your reasons are, it’s important to know how to rent out your house before jumping in headfirst. From preparing your house for tenants to familiarizing yourself with rental laws, there’s a lot to learn before you can make the transition from homeowner to landlord. Here’s a quick and easy guide for how to rent out your house.
It may sound obvious, but before you can put your single-family home on the market, you should take some time to spruce it up a bit and make sure it’s ready for new residents. Not only does this step in the preparation process ensure that your house is up to code, but it will also help you attract renters. Plus, when your house looks refreshed and updated, you can raise the rent and turn a higher profit.
Before working on cosmetic changes or updates, you should make sure that your house is up to code and safe. Both state and local governments have a set of building codes in place. These codes set minimum safety standards for housing conditions and are mandatory for landlords to abide by. Depending on where your property is located, these codes may cover maintenance, sanitation, electrical, ventilation, and fire safety. Do your research on your local and state regulations and make updates that are needed.
After this, the easiest way for you to guarantee that your house is up to code is to schedule an inspection with your local building department. Some departments offer a free inspection service, while others may charge a small fee. Making sure your property is rental-ready and up to code can save you thousands in compliance fines should you skip this step. So make sure you have a professional walk through the house and give you their seal of approval.
After you’re finished making sure your house is up to code, you can move on to making renovations and upgrades. The pandemic changed the way that people live in their homes. Many office workers have switched to working at home, permanently. Consider transforming a spare bedroom into a functional office space by installing shelving or a desk nook to attract renters. If you have access to fiber-optic internet in your area, consider having it installed, as well. Fast internet has proven to be vital to at-home workers.
There are also several easy cosmetic changes you can make without breaking the bank. Modernize your bathrooms by putting in new vanities and updating the light fixtures. Add a fresh coat of paint to the living room and bedrooms. If the house has carpet, get it cleaned. If you have hardwood floors, consider getting them resurfaced. With just a few updates and upgrades, you can make your home appealing to future residents.
You know what they say: you only have one chance at a first impression. When your future prospective tenants come to visit your single-family home, you’ll want them to be impressed the moment they step foot on your property. Power wash your sidewalks and gates to give the house a boost in curb appeal. You should also consider livening up the outside of the property by adding flowers and shrubs, removing weeds and stumps, trimming any trees, and mowing the lawn.
When your house is ready for residents, you can begin the leasing process. But before that, you’ll need to conduct some market research and determine how you should be setting your rental prices. First, you should evaluate different neighborhoods in your area. Identify how your neighborhood compares. For example, is your house near a good elementary school? Is it close to supermarkets and parks? Or, is it further away from these kinds of amenities? These are factors to consider when setting your rental prices.
You can also look at rental websites and see how other property owners are listing their rental properties. Many landlords charge tenants a percentage of their home’s market value. In this case, rents typically land between .8% and 1.1% of the home’s overall value. For example, if a home is worth $180,000, the rent would be between $1,440 and $1,800 per month. If your home is particularly well situated in a neighborhood, you’ve recently completed some landscaping and made some cosmetic changes, you can consider charging rent on the higher end of that range. However, property values can sometimes rise faster than rent prices. If you notice that other property owners in your area aren’t setting their rent prices in this way, you can set your rent price by comparing your house with other local properties and determining a fair price that way.
The leasing process encompasses every stage of renting out your house. From start to finish, there are a multitude of steps you’ll have to complete before your home is successfully leased. The first step, however, is to find potential tenants.
Gone are the days when all you had to do to find renters was to put a sign in your yard. Today, you’ll likely have to find residents by posting your property on a rental listing website. Many websites offer free listing services, though you may find that paid postings do a little bit better. According to Buildium, Facebook Marketplace, Rentals.com, and Zillow are all good options to consider. You may want to list your property on a variety of websites to make sure you get a good cross-section of applicants to sort through. After determining which site will work best for your needs, you can start setting up showings of your house.
When getting your house ready for showings, just think of it this way: company’s coming over. Clean your house from top to bottom. Dust, vacuum, mop, wipe down counters, and clean off appliances. Next, you should stage your home. While you can certainly show the house empty of furniture, you want prospective tenants to be able to picture themselves living in your house. The easiest way to do that is to help them visualize what the home looks like furnished and styled. Lastly, you’ll want the house to feel welcoming. You can use the old realtor’s trick of baking cookies in the oven just before the showing. Alternatively, you can simply keep the house well-lit and the thermostat set to a comfortable 70 degrees.
Most importantly, use your house showing as an opportunity to get to know your applicants a little better. Keep a record of who you’ve toured through your single-family rental and keep an eye out for red flags (eg. asking about long-term guests or sublettors this early in the process). You want to make sure that you’re not wasting your time by accepting applications from prospective residents who you instinctively know won’t be a good fit.
After a series of successful showings, you’ll have a stack of applications to choose from. Common courtesy and the Federal Fair Housing Act dictate that you are obligated to treat all prospective tenants equally. But, there are factors that will make some applicants more promising than others.
Firstly, you’ll want a tenant who is financially responsible and has a good credit score. You should run a credit check on your applicants and make sure that they have a relatively good credit score. In their credit report you’ll also be able to see their income to debt ratio. If their monthly debt payments are too high, even if they have a high income and a good credit score, you may not be able to rely on them to pay their rent on time. Next, you’ll want to collect proof of income. This can include copies of their pay stubs.
After checking credit and income, you should perform a criminal background check. (Some states prohibit landlords from discriminating against renters with criminal convictions. Be sure to look up your local renter and landlord laws.)
Once you’ve picked your perfect resident, you can begin developing your lease. First, however, you should familiarize yourself with local, state, and national landlord and tenant laws. Landlord-tenant laws exist in order to protect both renters and landlords. These laws dictate the ways in which landlords and tenants can interact, what rights both parties hold, and what both parties are obligated to do. For example, every landlord has the right to charge a security deposit. However, the way in which landlords hold that money depends on state and local laws. For instance, in the state of Kansas, a landlord must hold tenants’ security deposits in a separate bank account from the account in which they deposit rents. This account does not have to earn interest. Meanwhile, in the state of Massachusetts, a tenant’s security deposit has to be placed in an interest-bearing account and the landlord is legally required to pay the tenant any annual interest earned on the security deposit. Before drafting your lease, you’ll need to know the ins and outs of all of your state’s unique rental laws, as well as all national laws.
A lease, or rental agreement, sets up expectations for your tenants and informs them of all of your property’s rules. Make your lease highly detailed in order to avoid any misunderstandings or conflicts in the future. Your lease can either be a fixed-term lease (a lease with a set end date) or a month-to-month lease, which automatically renews until either the tenant or landlord decides to end the rental agreement. Many online resources exist to help you draft a lease, or you can hire a real estate attorney to help you through the process. Every lease should include some basic information including:
Your lease should also detail any special permissions and services. As an example, you would need to detail whether or not you plan on allowing tenants to keep pets on the property. If you do plan on allowing pets, you’ll have to include a section on pet deposits and pet rent.
As a safety precaution, you should also require (or at least encourage) all renters to have insurance. You should detail this information in your lease. Renters insurance covers personal property theft or damage for your residents. Additionally, renters insurance includes liability insurance. If they have visitors over and someone gets hurt, your tenant will be covered in case they get sued for damages. But, most importantly for you, your tenant’s insurance will pay for their temporary relocation if your home becomes uninhabitable due to a natural disaster or other catastrophes. While you can focus on getting your house repaired, your resident will have somewhere to live and won’t have to break their lease with you. Ultimately, this saves you the headache of having to find a new tenant and you won’t lose money as your property sits empty while being repaired.
While it’s definitely possible to manage the leasing process, upkeep, and management of a rental house, you may want to consider hiring a local property manager to help you. While you’ll need to learn all of the particulars of managing a rental property from scratch, a property manager will already have the expertise and experience to quickly turn your private residence into a profitable rental property. A property manager can handle as much, or as little, of your responsibilities as you’d like. If making your rental property a truly passive stream of income sounds appealing, hiring a professional property manager may be an option to consider.
Deciding to turn a house into a rental property can be equal parts exciting and overwhelming. But, with these tips in mind, you should be ready to kick start your career as a rental property owner in no time.
And if you’re interested in hiring a property management company to assist in renting and managing your house, you can get started here.