If you're planning to move but don't want to sell your home, you can consider renting it out. Having consistent cash flow from tenants is an opportunity you don't want to pass up. However, converting your home to a rental property isn't as easy as you may think.
In this article, you'll learn the benefits of converting your home to a rental property, and the proper steps to take in order to make it successful.
Benefits of a Rental Property
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Earn Passive Income – This is one of the main reason people invest in rental properties. The passive income can help you pay off the house's mortgage, as well as home maintenance and improvement.
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Benefit from Market Appreciation – Appreciation is a term all real estate investors should know. Real estate is a great asset to have because its value always appreciates over time. The growth is more stable than other investments. If you sell your property now, you might not be able to sell it at a high price. However, if you rent it out, you'll be able to hold on to your property while its value increases.
- Enjoy Tax Benefits Such as Deductions – As a rental property owner, you can deduct rental expenses from your tax. These include utilities, homeowner association fees, landlord insurance, and property taxes. It also covers mortgage interest, and expenses for maintenance and repairs. You will be able to save money from these deductions.
TIPS: How to Convert your Home into a Rental Property
1. If your Home is Mortgaged, WAIT
If you have a mortgage on your home, you need to live in it for at least a year. This is because buying a primary home has more perks than buying an investment property. Often, the interest rate and down payment is lower for primary homes.
If you say you're buying a primary home when it's really a rental, you're committing mortgage fraud. The lender can immediately stop the loan, which can lead to the home being foreclosed.
Check your loan agreement and study the occupancy clause. You can also set up a meeting with your lender to find out the rules and guidelines. After a certain period of living in your home, you can turn it into a rental property.
2. Check if you Can Get Another Mortgage
If you convert your home into a rental property, you'll need to purchase a new residence. However, before making that move, find out if you're qualified to get another mortgage for a new home. It might be a bonus if your lender considers the rental income you will get.
3. Check with your Homeowner's Association
Before renting out your property, check with your homeowner's association if there are any restrictions for rental properties. Some associations have no restrictions, while others only allow a fixed number of rental properties in the area. This step is important and shouldn't be skipped.
4. Update Your Insurance Policy
A regular homeowner's insurance is not enough once your property becomes a rental property. You will need to get a landlord's insurance. This includes liability and medical expenses coverage in case your tenant gets hurt in the property. Some insurance also protects items you leave in the property, such as a lawnmower or home appliances.
5. Know the Law
Study and follow rental property laws to avoid any legal troubles. You may also consult with a real estate lawyer when you have questions. These laws include tenant rights and fair housing laws. Tenant rights determine how much you can charge for late fees or security deposits. In addition, tenants can withhold rent if maintenance isn't completed.
6. Have your Property Thoroughly Inspected
Another key step is to have your property thoroughly inspected. You may hire a home inspector to do this. A professional can find out what needs to be repaired. The inspector might recommend having the plumbing fixed, the termite or pest infestations resolved, or might suggest fixing structural issues or repair the flooring.
Whenever possible, have your city government's inspector check your property as well.
Once they've checked your property, you can hire local contractors to fix it. The main goal for the inspection is to make your property a safe place to live in.
7. Ready your Property
There are several ways to prepare your property to be rented out. Here are some of the things you should ensure get done:
- Install carbon monoxide detectors.
- Change locks and alarms.
- Fix air filters, lighting fixtures and ceiling fans.
- Fill in cracks or holes in the wall.
- Mow the grass, plant flowers and shrubs, and trim unruly trees.
It's highly recommended to have your property professionally cleaned because experts will be able to thoroughly clean baseboards, windows and even appliances.
You want to make your property as attractive as possible to potential tenants.
Below are a few simple and inexpensive things you can do to make cosmetic updates in your property:
- Add a fresh coat of paint or change wallpapers.
- Replace carpets or have them professionally cleaned.
- Buy new appliances to replace the old ones.
- Upgrade kitchen or bathroom fixtures.
- Remodel the kitchen or bathroom, if you have the budget.
8. Know if you Need a Property Manager
Being a full-time landlord can be time-consuming and stressful. As a property owner, you will always need to be on call to respond to requests and emergencies. Aside from collecting rent, you will also need to find tenants and oversea the maintenance of the property.
Determine if you're able to handle all these responsibilities with your current situation. If you're too busy, then hiring a property manager might be best.
Investing in a rental property has many advantages, such as increased income. Following these tips will help you convert your home to a rental property. With the right knowledge and preparation, you can successfully have your own rental business.