Ah, the beauty of being a landlord and renting a place! When you retire, you can move close to grandchildren or to warmer climes and still get an income from your old home.
Renting your place is a potentially profitable undertaking. However, it is not always a bed of roses. There are responsibilities and risks involved. It’s vital to get things right and be ready to deal with the problems that may crop up.
Read on to explore the advantages and drawbacks of renting your place. Delve into topics such as rental license and tenant screening and make an informed decision about becoming a landlord.
As a homeowner, you may want to downsize or move in your 50s or after retirement. In that case, you have two choices. You can sell your home or rent it out.
The latter option could work for you, provided you have the money to buy or rent a new residence. Even if you plan to sell your old home, unfavorable conditions in the housing market may persuade you to wait and rent your place until you can get the right price for it.
Before making a decision, do some math to confirm that rent will cover the costs of managing a rental property, plus the mortgage payments on your old home (if applicable). Also, be sure you have the inclination to become a landlord and take on the responsibility of managing property and tenants.
Consider this overview of the advantages and drawbacks of renting your place.
According to the U.S. Census Bureau, renter-occupied units accounted for 30.5% of the housing inventory in the second quarter of 2023. Zillow’s August 2023 rent report states that the average asking rent in the U.S. is now $2,052. That is a 3.3% increase compared with August 2022, although the price growth has slowed since the February 2021 peak.
The rental market is very local. Before renting your place, you need to research your neighborhood to ascertain the demand for rental homes and typical rates in the area. Also, pay attention to what amenities tenants want and compare that with your home’s offer.
Before you decide to rent your property, read the Fair Housing Act and learn about the local laws regulating relations between landlords and tenants. Some states have specific rules on security deposits, property access, and notice periods for ending a lease.
You may also need a rental license or permit. Requirements vary by municipality and often involve an inspection to ensure the home complies with standard health and safety stipulations.
After you’ve spruced up your property, put your home up for rent. Write a good ad and post it online with several high-quality photos.
Your rent should cover your expenses, such as mortgage payments, property taxes, insurance, and repairs. Of course, ensure that your rental aligns with what your competition is charging, or you won’t attract potential tenants.
Rental property insurance is usually not obligatory, but it protects you from damages caused by the renter or a natural disaster (flood insurance is typically an additional coverage). Landlord insurance is between 15% and 20% higher than homeowners insurance.
A tenant screening process will help you choose somebody suitable. Ask potential tenants to fill in a rental application form you prepared. At the same time, obtain a written consent stating that they agree to a background check. Consider using a professional screening service to ensure the process is lawful, comprehensive, and accurate.
Have a lease agreement ready. You can find standard documents online, free of charge. However, you may want to add some specific clauses, for example, regarding pets or subletting. Have a local attorney check the document because regulations may differ from state to state.
After you and your tenant sign the lease, collect the security deposit and keep it in a separate account (this is not a requirement in all states, but it is good practice). Walk with your tenant through your home and document the condition of the place before they move in. Ask the tenant to sign the checklist and let them have a copy.
Then give your tenant the keys. You can keep a spare set. However, you can enter the rental only with the tenant's consent, except in emergencies.
When deciding how to rent your place, you can choose your strategy. You can opt for a traditional long-term (12 months or more) lease agreement. Or you can go for short-term rentals.
Renting out for a day, week, or month can make sense if your home is in a popular tourist destination or if you plan to use the property for part of the year. Short-term rentals are undoubtedly lucrative. Experts say they can bring in twice as much money as long-term leases.
On the downside, short-term rentals require a lot of work. There is also the element of uncertainty. Occupancy rates are difficult to predict, and your property may remain vacant for weeks. And don’t forget that some states and neighborhoods restrict or ban short-term rentals.
You will make less money with a long-term rental. However, the income will be more consistent, and you will have less maintenance.
Short-term rentals are typically furnished and have nightly rates. A long-term rental property is often unfurnished and carries a monthly rent.
Opting how to rent your place depends on the location of your property and your preferences. Both can offer good opportunities for supplementing your income or growing your wealth.
Rental income is classified as passive income, but being a landlord requires time and effort. If you can’t do all the work, hire a property manager to screen applicants, collect rent, and take care of repairs and maintenance.
Property managers typically charge 8% to 12% of the monthly rental value. Management fees for short-term rentals can be as high as 30% of the rent collected.
A property manager should have professional licenses and certifications. To choose the best, seek recommendations from friends and family. Also, check online reviews and ask for references. Then carefully read the property management agreement before you sign it.
Even when you find a manager to represent your interests and safeguard your property, you should keep in contact to ensure everything is going well.
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