Turn âhome sweet homeâ into âshow me the money.â
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If youâre thinking about moving, you may also be considering what to do with your existing home. Sure, selling your house or condo may net you a nice nest egg, but itâs not your only choice.
One popular option is turning your home into a rental property. Itâs tempting, especially considering short-term rentals are a $64 billion market, according to data analytics company AirDNA. But if you donât want to fuss with guests continually coming and going, leasing your home over the long term is often simpler and may provide more reliable monthly income.
No matter how you proceed, understanding the rental process is essential to success.
Key Points
- Know and understand local rental laws before deciding to rent out your home.
- Streamline your rental business and ensure compliance with regulations by establishing processes for screening tenants and handling repairs.
- A rental management agency can help you manage all aspects of renting out your property if youâre wary of going it alone.
1. Understand landlord and rental laws
Landlord and tenant laws vary widely by state. They can include everything from how much you can charge for rental applications to how quickly you must respond to repair requests. State and local laws also govern terms of eviction and security deposits. Before renting out your property, become familiar with these laws.
Some cities have strict policies regarding short-term rentals. And if your property has a homeowners association (HOA) or a similar governing body, renting out your home or unit may not be permissible. Be sure to review your communityâs bylaws.
Check with a state or local housing authority to learn the laws governing rentals, including discrimination laws. At the federal level, familiarize yourself with equal opportunity housing regulations and how to comply with the Fair Housing Act.
2. Decide between short-term vs. long-term rentals
Once you know youâre within the bounds of the law to become a landlord, itâs time to decide whether to focus on short- or long-term rentals.
- Short-term rentals are generally rental periods of 30 days or less. In this case, you leave your home fully furnished and stock it with essentials like personal care items and kitchen supplies. You might list it on sites such as Airbnb or Vrbo. Be sure to establish a process for cleaning and prepping as new guests arrive. You may have only a few hours between rentals.
- Long-term rentals usually mean a lease of at least six months to a year. You typically donât need to worry about including furnishings or items for tenants to use. Instead, you clear everything out, and the renter provides the items they need. Youâre still on the hook for regular maintenance and repairs, but you also have a much longer turnaround time (days or weeks) to clean the home thoroughly between tenants.
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Short-term rentals may generate more monthly revenue than long-term rentals, but they require more regular attention and effort. Long-term rentals offer relatively stable income, and you have financial recourse through a security deposit if a tenant breaks the lease early. Plus, you donât have to put effort into constantly turning over the property for the next guest or tenant.
3. Figure out how much to charge
One key component to successfully renting out your home is setting the right price. For short-term rentals, you can find suggestions on the websites where you list your property. They may even offer a dynamic pricing option that automatically sets your nightly rate without you needing to do much.
To determine long-term rental rates, research the area. Base your price on average rates for the number of bedrooms and bathrooms you have, along with square footage. Websites such as Zillow, Redfin, and Apartments.com offer insights into rental rates.
Creating a standard application and lease agreement is essential for long-term rentals. For short-term rentals, determine your policies, including whether youâll charge a cleaning fee and how much.
Consider landlord insurance
Protect your property by getting landlord insurance, which is designed to cover the cost of repairs due to natural disasters or tenant damage. It can also cover liability. Long-term tenants should have renterâs insurance for their personal belongings, but youâre responsible for the actual structure of your home.
Remember to include items such as the monthly rent payment, lease length, how tenants can get their security deposit back, and the maintenance each party is responsible for. You can also determine how your tenants will pay their rent. Some online portals help landlords collect rent electronically, including setting up automatic payments. Or you can have tenants write checks or set up automatic bill pay through their bank.
You can find templates for various legal documents online by checking websites such as LegalZoom and Nolo.
5. Create a tenant screening process
Develop a screening process to reduce the risk of tenants damaging your property or having payment problems. You might perform a credit check, collect references, and verify income. This isnât necessary for short-term rentals, but if youâre renting to long-term tenants, you want to know that theyâll pay their rent on time and be less likely to cause other problems.
As with other aspects of the landlord process, be sure your screening process follows federal, state, and local laws.
6. Decide whether to use a rental management company
Sometimes itâs worth using a rental management company instead of doing all the heavy lifting yourself. Depending on the company you select, you may pay a percentage of the rental income or a flat fee. A rental management company can help by:
- Advertising your rental
- Screening tenants
- Handling maintenance and repairs
- Arranging for cleaning and turnover (for short-term rentals)
- Collecting rent
- Ensuring compliance with all regulations and laws
- Dealing with any issues that arise
If you plan to live far away or are unsure how hands-on you want to be, a management company can relieve most of the burden while the revenue rolls in. But remember: Management company fees can really add up. If you require a full suite of services, expect to pay a full suite of fees.
Renting out your property can provide a source of regular cash flow, but itâs not as simple as advertising for tenants and collecting rent. There are laws to become familiar with and processes to put in place to protect you and your property. Short-term rentals are a tempting option given the size of the market, but require more time and effort. Long-term rentals offer more reliable income.
If you decide to move ahead with either short- or long-term renting, research your local housing market, create a solid plan for renting your property, and scope out a property management company for additional support in case you need it.Â
Specific companies are mentioned in this article for educational purposes only and not as an endorsement.
This article was most recently revised and updated by Miranda MarquitThis article was most recently revised and updated by David Schepp
