In recent years, more Americans are renting homes. In 2016, 43.3 million households were renting their homes compared to just 21.3 million in 1965. This increase in renters, it could be a smart investment to rent out a second property. Before you dive in head first, there are a few things you need to be aware of.
Interacting with Tenants
There are certain things you want to look for when finding a tenant to rent your property. You want someone who is trustworthy and won’t cause problems. Consider finding tenants online through a company such as TurboTenant. Their platform lets anyone interested in renting a home fill out an online rental application form. It’s the perfect tool for property owners to find reliable tenants.
Also, make sure you get a background check all prospective tenants to avoid tenants who might try to take advantage of you. Background checks can reveal red flags, such as an eviction history. See if your potential tenant has a good credit, a steady job, and an adequate income, which helps ensure they are able to pay full rent on time every month.
You will have to pay a mortgage, whether you have paying tenants or not, so finding a reliable client who is planning to stick around for for an extended period of time pays off.
Set rules with your tenants. You want your property to stay in good condition, so setting rules about what the tenant may and may not do can help preserve the home.
You might set a limit on how many people may live in the house or the number of pets allowed.
Purchasing a Property
If you are going to purchase a property to rent, be aware of what those in the renting market want in a home. Large properties don’t always equal more money; people might not be interested in renting a big home if it is expensive. Three-bedroom houses and one- or two-bedroom apartments are what most markets are looking for.
As with buying a home for yourself, pay attention to the location. People, by nature, want to rent homes in good neighborhoods close to good schools. If you can buy a property close to your own home, that’s a bonus, because it allows you to keep an eye on things with greater ease.
The Financial Side of Things
Make sure to account for all costs of owning a second home. You’ll need to add up costs from taxes, utility bills, and upkeep. After you figure out the total expenses of running this home, you can decide what rent must be to make the sort of profit you want. To be on the safe side, plan for your annual costs to be around 35 to 45 percent of the annual rental income.
You also want to avoid any unexpected costs due to your tenants. There are a couple of things you can do to avoid this. First, have your tenant pay a deposit. As some of us know, not all tenants leave the home the way they found it. A deposit can act as insurance, covering any repairs for damage caused by a client. Also, make sure your homeowner’s insurance covers your tenants.
Paying taxes on a rental property is very different from paying taxes on your own home, and they can be complicated. Hire a professional to help you out with these taxes. While you’ll have to pay a fee to get someone to help you with your taxes, it can save you tons overall. Remember to keep all receipts that have anything to do with managing your rental property since you can deduct these costs.
Be aware that renting out a property takes some work on your part. You can’t just find a tenant, sit back, and receive a monthly check in the mail–you’ll have to be much more involved than that. You are responsible for checking in on a regular basis and taking care of any repairs. Tenants don’t have as much invested in the property as you do, so it’s your job to keep things in good condition. You tenant might not be as concerned about certain problems as you would. Catching and fixing any little maintenance problems now can save you major costs on repairs later.
Do your research on your state’s laws on landlords and tenants. Most laws favor tenants, so you are going to make sure you are doing everything by the book to avoid getting in trouble with the law. You’ll want to know things such as “How many days ahead of time do I have to notify my tenant if I want him to move out?” and “How much notice do I have to give my tenant before visiting the property to make sure everything is in order?”
While being a landlord does demand responsibility, it can be well worth the time and energy. With the market for rentals growing, it will be just a matter of time before you start seeing a profit.