Whether you’re moving in with your significant other, relocating to a new city for work, leaving your digs for another reason (witness protection?) or if you’re just not ready to sell your place, renting it out may help you cover at least some of the costs.
Years of low mortgage rates and a strong rental market have positioned some homeowners to charge even more than their monthly mortgage. This is part of the reason why 39 percent of homebuyers plan to rent out their existing home when they buy a new one, according to a recent survey by real estate brokerage site Redfin.
But before you officially become a landlord, consider the following seven suggestions to help you avoid losing money — and protect your property:
- Run the numbers: To determine what rent to ask for, first estimate how much it will cost you for upkeep ― including your mortgage, utilities and other expenses ― and compare that amount to what other rental properties in the area are charging. Fair market rent data from the U.S. Department of Housing and Urban Development can help you gauge local rent.
- Consider hiring a property manager: If you live near your rental property, you may be able to handle issues and repairs. However, if you’ve moved out of state, having someone who can take care of urgent problems may be a good investment. Property managers generally charge between 10 and 15 percent of the rent amount, according to Reuters.
- Research potential tax breaks: As a landlord, you may be able to deduct certain rental expenses like property taxes, monthly condo fees, insurance and interest. Be sure to look into what counts as rental income and rental expenses so you don’t underreport income or overpay on your taxes. Check out this link from the IRS for details.
- Look into insurance options: Insurance provider USAA advises getting a different policy than you had when you lived in the home; a homeowner’s policy covers personal liability, structure and property-related medical expenses — rental property insurance will cover all those things, plus loss of rental income in certain situations.
Remember, most rental policies don’t offer much coverage for personal belongings you leave or store, according toUSAA. The insurance provider also advises landlords to encourage tenants to get rental insurance — that way if the tenant’s belongings are damaged in a fire, flood or other incident and the items are protected, they may be less likely to file a lawsuit.
- Track down the best tenant: Don’t ask about age or marital status; however, prospective tenants should provide a rental and employment history, references and credit information when they apply, according to the National Association of Independent Landlords (NAIL). The information can help you determine the individual’s debt-to-income ratio. NAIL, which provides free rental applications on its website, suggests tenants should make at least three times the amount of the rent cost.
- Set up automatic payments: Independent property owner resource site Landlordology recommends eliminating any chance your tenant will forget to pay rent by setting up an ACH (automated clearing house) debit, which draws money directly from the tenant’s account on a regular basis, or a recurring online bill pay, where tenants arrange for their bank to send you a check each month.
- Protect yourself: Security deposits, which U.S. News & World Report defines as “a cash guarantee from a tenant to a landlord,” can be a good idea, in case the tenant damages the property or doesn’t pay rent. However, states have different security deposit limits. For a state-by-state list, visit legal site Nolo.com.
Once you’ve figured out what to charge, fully protected your interests and found the perfect tenant, make sure you’re managing the owner-occupant relationship correctly. Landlordology has an interactive map of state rental laws and regulations that can help you deal with repair responsibility, monetary disputes or other issues.