Not knowing what you’re getting into before you rent your house can make the decision to become a landlord one of the worst in your life. Managing a property isn’t as simple as trusting your tenants and watching the rent checks come in the mail. By knowing the basics of renting a house, you can reduce your risks and have a more successful experience.
There are many things to consider before renting your property to a stranger. From finding the right tenant to running background checks, writing lease agreements, finding the right insurance and understanding legal responsibilities and the tenants’ rights, becoming a landlord or operating a vacation home will give you a new level of responsibility.
Before you rent your house, read these 5 helpful tips to help you protect your property.
5.) Find the Right Tenant
Before you have prospective tenants sign on the dotted line and you hand over the keys, carefully screen them and all the adults (anyone 18 and over) who will live in the home. It’s common for a landlord to run background and credit checks and request references. If a prospective tenant or anyone else who wants to live in the home refuses to give you permission to run a background and credit check, this is a good sign that you should deny the rental application.
Ask potential tenants to fill out an application form, listing their basic information: name, employer, salary, previous landlords and references.
To check credit reports and criminal history you’ll also need their Social Security number and signed authorization. There are online agencies that can take over the job and provide background checks. Before choosing one, make sure it is accredited by the Better Business Bureau.
Background checks should always include the following:
- Credit report: You can conduct your own research through one of the credit reporting agencies such as Experian or TransUnion
- Criminal history: Search state and local records online or find an agency. Landlord.com offers tips on conducting tenant screening.
- References: Contact employers and talk to previous landlords.
4.) Protect Your Home With a Lease Agreement
A detailed rental lease agreement is a necessity for both landlords and renters alike. Avoid possible headaches down the road and make sure to set up a detailed contract for any issues that may arise.
A good lease complies with tenant and insurance laws of your region. Because these laws differ across states, counties and cities, a local lawyer is the best way to make sure your lease will protect you. Avoid using lease agreements from the internet because they might not comply with your local laws.
A lease agreement should contain the following:
- Names: Include the names of all tenants. If there are residents on the property who haven’t signed the lease, they can’t be held legally accountable for breaking the agreement.
- Lease term: A month-to-month lease offers more flexibility, while an annual lease provides more stability if you are not planning to sell the property or use it for your own purpose.
- Security deposit: usually two month’s rent or more.
- Rental due date and late fees: Include this so you have protection if people don’t pay.
- Rules of behavior: Include things like noise levels, neighborly conduct and smoking.
- Pet policies: Specify whether you allow pets and related deposits
- Repairs: Indicate who is responsible for what payments.
- Eviction terms: Include things such as not paying the rent or damaging the property.
3.) Your Legal Responsibilities and State Tenant Laws
Before you rent your house and become a landlord, review the Fair Housing Act, which does not allow discrimination when screening prospective tenants, setting rental terms or evicting a tenant based on color, race, national origin, familial status, a disability, sexual orientation or gender.
State laws cover many aspects of the landlord-tenant relationship. These things include things like landlord access to the property. They also have specific rules about security deposit limits and the deadline for the landlord to return the deposit to the tenant.
In some states, laws tend to favor tenants. Some states require you to give tenants a 90-day eviction notice, even if they haven’t paid the rent in as many days or there’s major damage to the home. In other states, you may be responsible if the tenants steal cable or other utilities. Furthermore, if you don’t word your rental contract just right, tenants may be allowed to take (ahem, legally steal) some of your property like small appliances when they move.
In most states, you are obligated as a property manager to make repairs that a tenant requests if the current condition poses a hazard. However, you may have the right to deny requests to make cosmetic changes or to charge a tenant for damage that he or she caused to the home, like a hole in the wall.
2.) Protect Your Property With Insurance
When you rent your house, you’re not technically a homeowner. Therefore, you need to let your mortgage company know that the home is no longer your primary dwelling so they can give you permission to rent it out to another person, according to U.S. News & World Report.
If you own a rental property, you’ll need different insurance than for a normal home. You’ll need to change the type of insurance on the house from homeowners or fire insurance to a policy designed for landlords. This insurance covers the home and your property in the event of a disaster, but it won’t cover your tenant’s personal property.
Landlords should consider how they can protect their premises, its assets and the income they receive from their tenants. When a disaster occurs, tenants are often the ones to lose everything and miss out on compensation. Insurance protects against financial loss from things such as:
- Accidental damage caused by tenants
- Fixtures such as carpets, stovetops, ovens, light fittings, window coverings
- Loss of rent caused by tenants leaving and not paying
- Storms and other natural disasters
- Malicious damage caused by tenants
Some policies also protect you financially for legal liability if your renters or vacationers are injured or run into other trouble.
1.) Your Plans
To rent your house is like owning a business. In addition to outlining business goals for your rental endeavor, you also have to consider your plans. Do you plan to rent out the house for only a couple of years? Are you trying to sell the house but are renting it out in the meantime? When you know your plans, you can better determine if renting out the home is in your best interests and the interests of your future tenants.
Tip: Hire a Management Company
Management companies make every landlord’s life a lot easier. The fees they charge are well worth it and include mainly the two services: finding a tenant which includes advertising and thorough background checks) and managing the property on your behalf.
Be aware that the fee for filing a house can range from 50% to 150% of one month’s rent, depending on the area you live in. Monthly management includes collecting the rent, charging late fees, handling repairs and dealing with early vacancies and evictions.
To locate a property manager in your area, go to NARPM‘s website and type in your ZIP code. In some cases, your real estate agent may also offer property management or can recommend a service provider.
One big advantage of using property managers is emotional distance. The owner will get involved with the tenant emotionally. Property managers take good care of tenants, but at the end of the day, their job is to make sure you as the homeowner gets the rent.
Do you want to rent your house or use it as a vacation rental? Follow the tips in this article to make sure that this process goes as smoothly as possible, and don’t forget to use our tips for decorating the home if you’re providing the furniture.