Renting out the home you currently live in or own, provides an additional source of income. It also provides the foundational skills you will need before jumping into larger real estate investments. It can be tricky at times if you are not careful especially if it is your first time renting out.
Therefore, there are things that you need to consider before renting out your house.
1. Landlord’s Responsibilities
This is the most important thing that you should consider is whether you are ready to handle the responsibilities of being a landlord. Being a landlord does not only mean that you just collect money from tenants. However, you are responsible to all the things that is happening in the house and around the area. You could be held liable for the behavior of your tenants, depending on your tenancy agreement.
As an example, tenants might deal with issues pertaining to water, electricity and gas. Even if your tenant pays the utility bills, handling any complications that arise from these utilities is your responsibility as a landlord.
These services are registered to your name, and not your tenant’s. Having the tenant try to fix any problems will make the situation more complicated, since the agencies that oversee these utilities will require the owner to be present.
2. Research on Local Market
Before you rent out your home for investment purposes, learn the dynamics of your local rental market. Picture your rental as a business, and understanding the market as simply researching who the customers are, who your competition is, and what they are currently offering.
Having reasonable rates doesn’t mean having the cheapest prices. You will need to consider how large your property is, as well as the rental prices of similar properties in the vicinity. Then you would need to consider if your property and the furnishings you provide are all going to be worth the price you put on it.
3. Determine the type of rental
The next important step when renting out a house is to define your product. Determine what type of rental you want to offer to customers. There are various types of ways to generate income from your home. You can rent out the entire home, or an entire guest house. You can rent out bedrooms to individuals, or even multiple beds in each room.
Other than that, determine whether you want to offer your home for a yearlong lease, as a short-term rental, or on a standard month to month basis. Depending on your competition, define the amenities and accommodations your home will provide, such as appliances, any furniture, AC, or Smart TV.
4. Get a Property Management Company
Invest the time in researching, interviewing, and selecting a reputable property management company. Hiring a property management company enables you to produce an additional source of income, without compromising your full-time job, holidays, vacations, and quality time with your friends and family. Incorporating them into your business will truly elevate your rental to a passive income investment.
5. Prepare The Unit
Before you jump into the arena of being a landlord, you will have to properly prepare your home for potential renters. There may be repairs and aesthetic changes that will need to be made to make it more appealing. Therefore, make sure that all the appliance are in good condition and the water and electricity is running.
Although renting a house could earn additional money, you would eventually face problems in the future. There would be a possibilities of getting bad tenants who end up damaging your property, or flake out on paying rent. This would lead to higher cost in repairing the property. Therefore, you should prepare on the worse scenario that could happen and this brings us to the next point.
6. Draft A Tenancy Agreement
Finally, you would need to draft the tenancy agreement where it is a binding document between you and your tenant, and it also serves as the sole governing document of a tenancy. This Agreement should be draft by you but as a first timer, consulting a legal professional is the best choice to help you draft it.
The terms in a tenancy agreement are also based on mutual understanding, and both you and your tenant are allowed to object to clauses within it. Once both of you have managed to reach a happy compromise, the contract can then be signed.
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