Turning your home into a rental can be a very lucrative investment, allowing you to rake in passive income with relative ease. However, getting started does require effort, and if you want things to go as smoothly as possible, you need to take the right steps. Whether you’re looking to make money from an unwanted residency or turn your primary residency into something more lucrative, you’ve come to the right place! Let’s take an in-depth look at how to turn your house into a rental property.
Check In With Your Lender
Even if you personally didn’t take the loan out on the property, you still need to speak with the mortgage lender to make sure there aren’t any conflicting conditions. Some mortgage lenders require you to live in the house for at least a year, which is typically called an occupancy clause. If you violate this clause, the lender could charge you with mortgage fraud, which isn’t something you want to get stuck with. Additionally, some loans may only cover a primary residency, and if that’s the case, you’ll need to refinance to an investment property loan.
Speak With the HOA
On top of speaking with your lender, you’ll want to speak with your homeowner’s association (HOA) if you have one. The HOA may have additional requirements and restrictions, and some HOAs may bar you from renting out a property altogether. Occasionally, an HOA will only allow a certain number of rentals in the area, and you may be put on a waiting list. Whatever the case may be, it’s important to review your HOA agreement or speak with a member of the HOA if you’re having trouble finding or understanding the requirements.
Change the Insurance
Insurance policies for primary residencies and rental properties are very different. Policies for landlords typically include property and liability insurance, protecting you from property damage and the loss or damage of personal property. Liability insurance will protect you from having to pay medical bills or legal fees in case of an accident or legal dispute. These added protections make rental property insurance more expensive than homeowner’s insurance. However, changing the insurance is worthwhile, as rental properties often see a lot more wear and tear than regular homes.
Get the Proper Permits
Most municipalities have laws regarding primary residencies that function as rentals and often require you to obtain the proper permits first. As a landlord, it’s your duty to provide your tenant with a safe and habitable home. If you’re converting a home into a rental, an inspector will come and make sure the property is in good enough shape to meet housing standards. They’ll check the safety and habitability of your home, paying close attention to the heating, cooling, and electrical systems. However, permit requirements vary. If the inspection uncovers the need for repairs, you’ll have to make them before you can get the permit.
Familiarize Yourself With the Law
There are so many laws that detail how you should and should not manage your rental, all of which vary at the federal, state, and local levels. These laws cover a wide variety of topics and dictate everything from how you screen your tenants to how much you’re allowed to charge a security deposit. This may seem intimidating at first, but plenty of online resources tell you exactly what you need to know in your area. If that proves unfruitful or too confusing, you can also speak with a real estate attorney who will explain exactly what you need to know.
Make Your Property Appealing and Ready for Renters
When converting a home into a rental, you have to start thinking from a marketing perspective. While many of your applicants may be online, your curb appeal matters, as it’s the first thing people will see when they drive by or visit the property. That means your first job is to update and refurbish the exterior and the landscaping. For the interior, you’ll have to remove any personalized family items and ensure it looks presentable. When preparing the property, keep in mind that the goal is to help applicants envision themselves living there one day.
Make the Necessary Updates and Additions
While the inspector may have notified you of necessary repairs to make the home habitable, there may be some other projects you want to tackle. Now is the time to do so. The updates and additions you make will help attract tenants and allow you to increase your asking price. For example, you may want to update the roof, install a new security system, or maybe add a porch or pool. Whatever the case may be, making these changes sooner rather than later will make it much easier for you to determine your asking price.
Write the Lease Agreement
Your lease agreement will be your best tool and your biggest ally, so be sure to write your lease agreement as clearly and thoroughly as possible. It should include your pet and smoking policies, maintenance fees, how to submit maintenance requests, your policies regarding late rent, and so on. This contract will act as proof of what your tenants agree to should they try to argue or violate the rules you set in place.
Find a Screening Service
Every landlord has an idea of what their ideal tenant will be like. However, the only way to guarantee you’ll find a quality tenant who meets your standards is to screen all your applicants. In your lease agreement, there should be a place for the applicant to sign and agree to a screening. There are plenty of screening services to choose from. And most, if not all, will give you relevant information about the applicant’s credit history, debts, criminal background, education, and employment.
Determine How Much You’ll Charge
At this point, you’ve likely discovered why turning your home into a rental is referred to as an investment—you’ve spent a lot of time and money to get here! How much you charge in rent will help you make back what you spent and eventually receive returns. Consider the price of permits, loans, repairs, additions, and other services when determining how much you’ll charge. Also, knowing the fair market value of your rental property can take quite a bit of math, and a real estate professional can help if you’re having trouble.
Now that you know how to turn your house into a rental property, it’s time to decide how you’ll manage your property! You can become a private landlord and manage all the marketing, screening, and repairs independently, or you can make things easier by working with a rental property management company.
Excalibur Homes has been in the business since 1985 and provides real estate investors with the management services they need to run a successful rental business. Whether you need help with leasing, managing, or the whole process, we’ll be there to ensure you get the most out of your investment.