The thought of putting your beloved property up for rent can be exhilarating and nerve-wracking. So, before you leap into the world of being a landlord, let's weigh the pros and cons of renting out your house, then follow a step-by-step guide to make the process smoother.
Pros of renting out your house
- Extra income: Undeniably the most tempting reason of all is the passive income opportunity that renting out your house provides. That monthly rental income can cover mortgage payments, property maintenance or simply gift you with a reliable monthly income.
- Property value appreciation: While your property is being rented out, its value could be increasing. That means when you ultimately decide to sell, your home could be worth significantly more than when you first bought it.
- Tax deductions: Your status as a landlord can open doors to some tax deductions including property taxes, mortgage interest and the cost of repairs.
Cons of renting out your house
- Maintenance and repairs: Any repairs or maintenance will be at your expense. Plumbing problems? Roof leaks? They're all your responsibility.
- Potential for bad tenants: Not everyone treats rental properties with respect. You might encounter tenants who pay late, damage the property or cause other headaches.
- Legal considerations: There are rules and regulations about renting out your property. Failure to comply can lead to costly legal issues.
A step-by-step guide to renting out your house
- Assess your property: Is your home ready to be rented out? Consider any needed repairs, updates or enhancements that will make your property more appealing.
- Determine the rent: Check out local rental prices for similar properties. Or use our rent estimator to get a more specific number of what you could earn from renting out your house. Don't forget to factor in your expenses and desired profit margin.
- Know the laws: Familiarize yourself with local landlord-tenant laws, which may include tenant rights, eviction procedures and safety regulations.
- Draft a lease agreement: This contract between you and your tenant should detail the terms of the rental. It's wise to consult a lawyer or use a reputable template.
- Market your property: Use online platforms, local newspapers and word-of-mouth. High-quality photos and an appealing description are essential.
- Screen tenants: This might be the most crucial step. Check potential tenants' backgrounds, credit scores and rental histories. Under no circumstances should you skip this step.
- Manage the property: Decide if you'll manage the property yourself or hire a property manager. The latter can be extremely helpful, especially if you don't live nearby or don't want the hassle that comes with being a landlord.
- Prepare for move-in: Ensure the property is clean and all appliances are working. Conduct a walkthrough with the tenant, documenting the current condition of the property to avoid disputes later.
Short-term vs. long-term rentals: What's the difference?
You've decided to dive into the world of renting out your house. But here comes the tricky part: should you go short-term or long-term? Both have their own benefits and challenges, so let's take a minute to break them down in detail.
Commonly referred to as vacation rentals or Airbnb-style rentals.
Pros of short-term rentals
- Higher income potential: Often, short-term rentals have higher nightly rates compared to the monthly rates of long-term rentals. If your property is in a prime location like near tourist attractions or large conference centers, you can make a tidy sum.
- Flexibility: If you want to use your home yourself for certain parts of the year, short-term rentals allow this as you can easily block off dates for personal use.
- Less wear and tear: As tenants are usually transient, your property will likely experience less wear and tear compared to a continuously occupied long-term rental.
Cons of short-term rentals
- Increased management: Frequent guest turnovers mean more cleaning, more communication and more overall management responsibilities.
- Income instability: Peak seasons can bring in the cash, but off-seasons can be quiet. This can lead to unpredictable income streams.
- Regulatory challenges: Some cities have strict regulations or even bans against short-term rentals, often requiring special licenses or taxes.
Typically involve lease agreements that last for six months, a year or even longer.
Pros of long-term rentals
- Steady income: Once you secure a tenant, you have a consistent and predictable monthly income for the duration of the lease.
- Less management: With less turnover, there's no need for constant check-ins or frequent cleanings.
- Build relationships: Over time, you can build a rapport with your tenants, which can lead to lease renewals and fewer vacancies.
Cons of long-term rentals
- Less flexibility: If you decide you want to use or sell the property, you'll have to wait until the lease is up or negotiate with your tenant.
- Potential for greater damage: Longer stays might mean more wear and tear, and if you have a bad tenant, the potential for significant damage only increases more.
- Harder to adjust pricing: With long-term leases, you can't adjust the rental price as frequently as with short-term rentals, which could be an issue in rapidly appreciating markets.
When deciding between managing a short-term or long-term rental, consider your desired level of involvement, how often you might want to use the property yourself and the kind of income stream you're looking for. Both options can be lucrative, but they cater to different landlord styles and goals.
FAQs about renting out your house
- Can I rent out my house with a mortgage? Yes, but check with your mortgage lender first. Some agreements have clauses that prevent renting.
- What if a tenant doesn't pay rent? Follow legal procedures for your area. This might involve sending a notice, and if unpaid proceeding with the eviction process.
- How do I handle repairs and maintenance? Be proactive. Regularly inspect the property and address issues immediately. For larger problems, consider hiring professionals. If you have multiple properties, it pays to form a relationship with a handyman or repair expert.
- Should I allow pets? This is up to you. Pets can cause damage, but charging a pet deposit can offset potential expenses. Plus, allowing pets can widen your potential tenant pool.
Is renting out your house right for you?
While renting out your house can be a fantastic financial move, it's not without its challenges. With careful planning and a keen understanding of the process, you can become a successful landlord. Cheers to your new venture and enjoy those monthly rent checks.
The information contained in this article is for educational purposes only and does not, and is not intended to, constitute legal or financial advice. Readers are encouraged to seek professional legal or financial advice as they may deem it necessary.