In troubled times when sales are sluggish, the rental market tends to boom. This phenomena has a many pronged effect: first, on renters themselves who struggle with more competitive and expensive rentals; next, on buyers, who might now consider purchasing a rental property a very smart investment. But there is a third, and unsuspecting group: sellers. When homes won’t sell (or will only see for a substantial loss), sellers could opt to assume the role of landlord, forced to turn their home “for sale” into a home “for rent” instead. This is the new class of “accidental landlords.”
But if you are to become a landlord, whether accidentally or on purpose, you need serious advice to protect yourself, your money, and your home. This advice article offers only a fraction of issues to consider.
- 1st: Prepare yourself emotionally. Selling is different because you will rarely have occasion to see the inside of this place again once you sell it. As landlord though, you’ll see the home as it suffers the ministrations of various tenants, most of them likely to be strangers, who may or may not care for the place as well as you did. Yet laws prevent you from just walking right in to the place. This could be the making of much heartache, not to mention high blood pressure– perhaps not a healthy choice if you’re not ready.
- 2nd: Check the bottom line. You need to know how much rent you can collect for any unit, given its size, location, and amenities. You want to be sure that rent will cover your landlord related expenses (utilities, up-keep, advertising, insurance, taxes), including months you may miss income while you look for a tenant. List your expenses for the home and determine what costs you’ll chip in for the tenant, such as water and cable. Research what other homes like yours cost to rent in your area. Will you be able to cover your expenses and make a profit? Zip has multiple calculators, free for your use, here.
- 3rd: Have a long-term plan. You may not make a profit your first year as a landlord, but if your home appreciates markedly during this year, and you can then put it back on the market, you may have made a great investment after all. Zip offers up-to-date property information on our website (click the tab titled “Find a Home’s Value). Search any address here.
- 4th: Know the laws in the area you’ll rent in. This means insurance issues, taxation of rental income and expenses, as well as maintenance requirements and leasing/eviction regulations. If you will be absentee, especially if this absence has you in another state from the one your rental’s in, you might want to turn over the reins to a reputable property management company. Note that each state has not only its own laws but also its own forms for rental transactions so downloading a generic form off the Web might backfire.
- 5th: Find a good tenant. You want to be discriminating, but you cannot legally discriminate. You want to know how to check credit, job and rental references for all tenants without crossing any lines in privacy protection. With written permission from applicants, you can run credit checks and background checks online at places like The Landlord Protection Agency or U.S. Search, or through America’s credit bureaus, such as TransUnion. Again, be sure you know what grounds you can legally use to turn someone away, and consider that these days, spotty employment or credit might not be a sign of a “bad tenant.”
- 6th: Collecting the rent. Rental income is tricky. Some landlords say that you can protect yourself better if payments come by credit card or through PayPal, since credit card companies offer guarantee of payment even in cases of consumer fraud; however, be sure you know the tax laws for both income and expense as a landlord. In the meantime, to ensure you have a paying renter at all, consider listing your property with local employer bulletins and newsletters: schools, hospitals, major companies, etc.– any of these may find you a dependable source of good tenants.
- 7th: Get tenant ready. Make sure everything that has to work does, and consider that maintenance is more than a legal obligation. After all, you want to keep your home’s value while you rent, or you may have to spend a lot restoring it once you decide to sell. ZipCode ran a helpful article on inexpensive ways to ready your house for selling that will apply just as much to readying your home for renting. Find it here.