Tax Season Is Here – Time To Buy A New Home
What are you going to do with your tax return? How about renovating your home? It’s a great idea for any homeowner that is thinking about renting or selling their home this year. You can improve the property by fixing it up for rent or resell with your tax return dollars. For those of you looking to fix up a property and turn it into a rental, here are some tips for properly renting your home for success.
How to Rent Your Home
Looking to make some extra money by renting your house? It sounds easy; put your home up for rent and let someone else pay the mortgage for you! However, if it were that simple, all the homeowners would become landlords! You will want to take some steps to ensure your home’s well cared for during its rental period and to protect yourself. Your rental property is your investment, you may also decide you want someone to manage your real estate investment for you.
Before you decide to put your home on the rental market, take yourself to the worst case scenario. Are you able to survive financially if your tenants turn out to be derelict with their rent or they thrash your house? Can you afford to pay eviction costs or the money to completely repair your home from damages? If you don’t have that extra cushion, you may want to reconsider renting until you do. Without the proper financial cushion, you could wind up losing the rental property. You will also want to take pictures of the home before you rent it, in case you need to file a claim for damages. You hope that is not the case, but if the renter decides to rip out all the appliances in the middle of the night, you want to make sure you have documentation of how the home looked beforehand. You will also want to make the home presentable, but not too nice, depending on the neighborhood. If you put travertine tile throughout a home that can only rent for $1000.00 a month, you are putting money into tangibles that will not make you a profit in the long run. If other rental houses in the neighborhood boast upgraded appliances and extras, to get top dollar, you will have to supply those items, also. Adding coveted items in a particular neighborhood, like a washer and dryer onsite, might give you an edge when renting, and for a minimal investment. Otherwise, just rent the house for a lower price as is.
Also, ask yourself: can I afford a property management company? If the answer is no, be prepared to either have someone who can repair problems for your tenants or learn how to do it yourself. It is truly worth the money to hire a company to care for all the home’s details, including collecting the rent and making repairs. A property manager can also advertise for new tenants, sign leases on your behalf and issue legal notices when necessary. While you will have one more expense, it will give you peace of mind, especially if you don’t live near your rental property.
If you want to rent your house, you want to make sure you do it right, and that means covering all the details and not cutting corners. The bottom line is you want to rent your home to reputable tenants and, if possible, make a decent enough profit to make the venture worthwhile. You can also keep the home and the tax write-off and maybe even eventually move back into the home. If the rental market is hot, it might be beneficial to rent this property while you live somewhere less expensive. You will, however, have to claim the rental payments as income on your taxes, so make sure the amount you charge in rent covers all your expenses.
Once you decide to rent your home, you need to settle on a price. You may feel your home is worth a certain amount each month, but if other homes nearby are not renting for that amount, it is unlikely you will get that number each month. It is important to complete your due diligence before you rent your home; make sure houses in your neighborhood are renting for an amount that makes sense for you. If your house payment is $1000.00 a month, and rentals go for $1200.00, it may not be in your best interest to rent, especially if you must pay a property management team each month, too. One quick way to determine your rental amount is to go to a website like Zillow or Trulia; they can give you an estimated rental amount based on your area and the size of your home. They don’t, however, take into account any extras that your house may have that someone else’s doesn’t, so remember the number is just an estimate. You can confirm the numbers with a local property management company to make sure your rental amount is in the ballpark. The last thing you want to do is leave the home sitting empty because it is priced too high; some rent is better than none.
After settling on a price, you will want to come up with a reasonable deposit. Generally, paying first and last months’ rent is fair; that way if the person thrashes your home or moves out unexpectedly, you have a month’s rent to use towards repairs or finding new tenants. Your rental agreement should clearly state the terms of the rental and whether or not the funds are refundable at the end of the leasing period and if you are allowed to keep them for damages or cleaning.
The crux of a successful rental is finding the best tenants possible. You may decide you want to rent to friends or family but that is a precarious undertaking. If anything goes wrong during their tenure in your house, you may jeopardize the relationship. Instead, thoroughly vetting a renter to keep the situation professional will benefit you in the long run. Finding qualified renters can be a challenge, which is where a property management company can come in handy. They can take applications, run background checks, run credit assessments, and show the property so you don’t have to. You can give the property management company your criteria for the tenants—i.e., no smokers, no pets, and minimum financial standards. You want to make sure the person or persons who rent your home can afford to do so handily, so it is important to gather documentation to prove employment and income.
If you have many applicants, you can be choosy about your tenants. If there are two qualified applicants and one has a better credit history, solid income, and excellent rental record, those might be your determining factors in renting to that person. You may want to assess the entire background report to see if your potential renter has prior evictions, felonies or bankruptcies and if so, you may decide to rule him out and move on to someone else. If your rental application numbers are low, you may want to loosen your standards to secure a renter or wait for someone who meets all the criteria to come along. If you choose the latter, make sure you have the funds to cover your empty rental for a few months.
Renting your home can be lucrative, and it can be a little scary. With proper research, you can find the perfect tenants for your home and love being a landlord!