What You Need to Know Before Converting Your Home into Rental Property
Converting your primary property into a rental property cannot be done on the spur of the moment, it requires planning and a cost benefit analysis
Let's say you have one mortgage and you plan to get another one. You first have to know that you may include only 75% of the monthly lease revenue to your monthly income calculation. The lender will consider the other 25% to be regular expenses for a landlord. Once you've established your rental property on tax returns, then those will be used to determine your rental income.
May require another type of insurance
Your existing homeowner's insurance will not cover all the risks encountered as a landlord. In this new capacity, you will have a certain degree of responsibility regarding your tenants’ safety. If there is an injury due to a fault at your property you will find yourself in the middle of a major legal problem. To eliminate the possibility of such a headache you need another home insurance policy for renters. Look for policies that include reimbursement for lost income if the house incurs damage. For example when a flood takes place, or a tree falls on your house during a storm. During that time, the property will not be fit to rent. Therefore you will lose the income if not covered by such an insurance policy.
Good news! It is not mandatory to have such additional rental insurance. This policy is more expensive than the initial home property insurance. This is because since it covers the house/apartment but doesn’t cover the personal items of your tenants.
In order to be able to rent at a competitive price, the house has to be clean. Typically rentals have fresh paint, you'll want to update fixture and replace the carpet. So do your math first to see when and if you will break even if you do all the upgrades.
Deciding What Will You Charge
Don’t use an optimistic scenario. Lists all costs, including the ones prior to property ownership, as described above. Don’t forget to add an extra percentage to your costs on behalf of the future repairs. Add the profit you will like to see and there is your monthly rent. If you want to hire a Property Management Group to act as a landlord on your behalf don’t’ forget to include the management fee that is regularly 10% of the renting price. Compare the resulting monthly rent with the market price for similar properties. Do this to be sure that you are not completely out of the market and you will not be able to rent at the desired rate.
Before starting to look for tenants make sure you have read and understood the Fair Housing laws. You can choose your renters based on intuition but it will be wiser to run a credit check on prospective tenants and to work with an attorney when writing the lease contract. If you plan to work with a property management group you might receive support regarding the needed paperwork from them.
- Hiring a Property Management Group
If the property you want to rent is not close to the place you live. Or you don't want the hassle that comes with the day-to-day tasks of being a landlord, you should consider working with a property management company. As mentioned before this perk comes at a price, on average 10% of your rent. Such companies will also assist you in the eviction process if the tenant doesn’t pay the rent.
Now you are armed with all this information. You wonder where you should start. Contact Casey Moseman
and she can guide you through the process from start to finish. She can advise if this is the right time to buy a new property and rent the one you already have.