WHAT TO KNOW BEFORE RENTING YOUR PROPERTY
Rental income from houses, cottages, or apartments can be a lucrative way to make passive income.
But it’s not a slam dunk that it’ll be profitable, and it could even cost you money – along with some sleep.
There are a handful of things to consider before you decide to rent an existing property, acquire one, or build an additional dwelling on a rural property. This list of questions will help you decide if the investment of time and money is worth it.
What’s the demand for rentals in your area?
People rent property in every market, but your location will determine whether you consider long-term or short-term options. Wherever there’s a strong job market, you’ll have a demand for housing. If you live in or near a tourist destination, you may want to consider short-term options like Airbnb or VRBO.
What are your personal needs or wants with a rental?
There are benefits and drawbacks to both long-term and short-term, so consider your personal needs when figuring out which one will work for you and your family.
Do you just want a check every month with little hassle? Would you rather have someone staying just for a few days at a time to limit the commitment? Be realistic about what you’re trying to get out of it before you make a decision about how you’d like or rent your property.
Is your property attractive to rent?
It’s one thing to see a vacant guest house or cottage as easy money, but take a good look at it to assess its appeal. (Or have an objective person give you an opinion about rentability.) Some of the basic things a desirable rental should have are fresh paint, clean appliances, new carpet, easy access, ample parking, and curb appeal. These are easy things to achieve with a little elbow grease and won’t cost much.
Depending on the area where you live, upgrades may affect how much you can charge, but don’t overdo it. The whole goal is to make money, so whether you have a $30 kitchen faucet or a $180 one won’t do much to bring in extra dough. The biggest thing is clean and functional.
Have you considered the total cost?
When considering renting a property, you can’t just look at the potential rent as pure profit. There are hard costs to you that you’ll need to factor into the equation. There are fixed costs, such as insurance and mortgage payments, and then there are other costs that are much harder to calculate (but are nevertheless very real).
Depending on wear and tear and length of tenancy, there will be costs to turn the property over to a new tenant (replacing carpet, repainting, and making any repairs caused by tenants). In a nightmare scenario, the tenants have skipped out on the rent and caused a lot of damage. While this isn’t likely, it is still a risk you should be aware of. Even if they don’t destroy the place, there will be normal wear and tear you’ll need to fix before renting it again.
A big mistake people make is investing in something they can only afford if someone else is paying the mortgage. You should comfortably be able to make that payment without rental income in case you go long periods of time with no tenant.
Other things to factor into the cost are overall maintenance, advertising to find tenants, additional insurance, and capital gains tax on profits. Also, think about if you want to hire a property manager. While it will cut into your profits, a good property management company will do all of the work of finding tenants and taking care of any issues. If time is more of a factor for you than money, you might want to consider hiring one.
Do you know landlord/tenant rights and responsibilities?
Each state has its own laws regarding the rights and responsibilities of tenants and landlords regarding inspections, collections, and termination of agreement. Consult a local real estate lawyer to get a clear picture of the law as it applies to you and your property.
Avoid verbal agreements – if it isn’t in writing, it isn’t real. You should have a lawyer provide you with a lease to make sure it complies with fair housing as well as insurance, rental, and tenants laws for your particular area.
In general, a lease should cover the following:
- Term of lease
- Rental amount and due date
- Late payment penalties
- Amount of security deposit
- What is included in the rent, if anything (utilities, cable, Wi-Fi)
- Who is responsible for maintenance (like lawn care and pest control)
- Restrictions on the property (time for noise cut off, smoking, number of guests allowed, etc.)
- Policies on pets (including extra deposit)
- Terms of eviction
If you’re renting a house on a larger property, be crystal clear about what the tenants can and can’t do with the land. Some of the risks of renting houses with land are tenants acquiring a lot of items (junk!) that they leave for you to haul away, starting rural businesses with a lot of traffic, or even building structures without your permission.
Also, address (in writing) whether or not they can have livestock or hunt on the land. And for long-term tenants, always do a screening for criminal background, credit, and income.
Do you know who’s on your property?
If you are considering renting a dwelling on your existing property, a Guardline outdoor motion sensor can help you know who is coming and going. It will alert you to someone’s presence anywhere you have a sensor, which can give you peace of mind if you’re inviting strangers to live or stay on your property.
If you have questions about any of our products, reach out to our American-based customer support any time.
Until next time, be safe…