6 Things to Know Before You Become a Landlord
By AJ Smith
As the housing market continues to recover, you may hear about renting mavens who capitalize on the increasing rental market. Renting can be a great way to make some extra income, but it's important to consider the appropriate preparations before you get on board. If you are thinking about renting out your home, here are some tips to consider.
1. Know the Laws
Not every state operates with the same landlord and tenant laws so be sure you know the laws that will govern your property before listing it. Your neighborhood may also have rules about rentals. Not only is your responsibility a huge obligation, but there are legal implications involved in becoming a landlord. It's a good idea to study up on your rights and what you can or cannot demand from your tenant, including when you can legally enter the home. (Also keep in mind that federal housing law prohibits discrimination based on race, color, national origin, religion, sex, disability and family status -- such as whether children will live in the home.)
2. Create a Contract
A simple lease drawn up with the accurate legal jargon can go a long way toward protecting you. It's a good idea to have every adult who will be living in the home sign the document before moving into the rental. The lease should include details about the length of the rental term, security deposit, due dates for rent, maintenance responsibilities, rules of behavior and eviction terms. This can save you thousands in court fees in case something goes wrong. It's also a good idea to make sure you have the numbers of emergency contacts for your tenant.
3. Screen Tenants
You don't want just anyone renting from you. It's important to take the time to create an application with the basics: full name, employer, salary, any previous rentals and landlords in addition to references. You also will need prospective tenants' Social Security numbers to conduct a background check and you need their authorization to run a credit check. You should meet the prospective tenants if possible, or at least arrange a Skype session. (An alternative is to hire a professional property manager; you will have to pay a fee, but many people choose to do it that way.)
4. Determine Market Value
Figure out the monthly costs of becoming a landlord and learn what other rental properties in your area are charging. You know potential tenants will be searching around for the best deal, so it's important to set a competitive price and highlight what makes your home desirable. Don't forget to consider all your expenses, including property tax, insurance, maintenance and repairs.
5. Protect Your Belongings
When you are renting out a property, you often are exposing some of your possessions to nearly complete strangers. Evaluate your belongings between tenants -- and document the rental's condition with photos -- so you will be aware of any damage. Be sure you have appropriate insurance coverage, and encourage tenants to buy renters insurance to cover their own belongings.
6. Consider Your Responsibilities
Making money from renters can provide a serious income boost, but it's important to consider whether you can comfortably manage the responsibility. Becoming a landlord means you have to respond to renter questions and concerns promptly. While you may be willing to wait months for a broken door to be fixed in your home, a renter may not be. It's a good idea to consider whether you want the added responsibility and time commitment that comes with becoming a landlord.