In Denver, Colorado, the number of renters is quickly catching up to the number of homeowners. In 2006, the number of renters was 226,832.
By 2016, that number had grown to 320,149. Meanwhile, homeownership went from 392,162 in 2006 to 359,158 in 2016.
If you’ve been considering renting your home, this is great news for you. Renting out a house is a great way to earn extra income.
But there are some things you need to know before renting out your home. This will help you find great tenants and ensure this is a way to earn passive income rather than deal with a money pit.
Keep reading to learn seven things you need to know before renting your house.
1. Before Renting Your Home, Learn More About the Market
Deciding how much rent to charge your tenants when renting out your home isn’t always easy. You can’t just come up with a number.
If you set the rent too high, no one will rent it. Set the rent too low, and you’re losing out on income.
Research the Current Market Value of Your Property
Instead, you should find out the current market value of your property. If you’re unsure, try contacting experts in your market for an assessment. Check out mortgage websites like Trulia or Zillow to find your home’s estimated value.
Denver doesn’t have rent control to worry about and there are also no rules regarding how much you can ask for a security deposit. But you should know what other landlord-tenant laws are within your state or, your HOA (homeowners’ association).
2. Determine What the Financials Will Be
There are other laws you may have to abide by when renting out your house. Consider sitting down with a real estate attorney and accountant to make sure you won’t end up violating any of the following:
- Tax laws
- Zoning ordinances
- Local property rules
A real estate attorney can help you draft a lease.
Also, renting out your home may qualify you for tax deductions. But you need to know which ones are deductible and what limits there are on those deductions if any.
Understand Typical Costs Associated With Renting a Home
You’ll then have a better understanding of what the typical and sometimes unexpected costs associated with renting out your home are, such as:
- Property management
- Capital gains
Understanding the costs can help you save for any potential problems and decide if short-term or long-term renters are more ideal for your situation.
3. Make Sure Your House Is Attractive to Renters
Think of attracting potential renters in the same way you would potential buyers. No one wants to rent a home that looks run-down.
Before putting it on the market, apply new paint to your walls. But you should also go one step further and have your property inspected to find out if there are any underlying structural issues that first need repairing.
Not only will fixing up your place help improve your home’s curb appeal but also, from a legal standpoint, you’re protecting your investment.
4. What Insurance You’ll Need
If you choose to rent out a home that’s still under a mortgage, you’ll need to buy a landlord insurance policy.
A landlord insurance policy is like a homeowner’s policy but won’t cover belongings.
What a Landlord Policy Covers
Also, some homeowner’s insurance policies will cover a short-term rental but not a long-term rental. And a landlord policy costs on average 25% more than a regular homeowner’s policy but provides more protection such as:
- Coverage for loss of rental income
- Coverage for your personal items
- Liability coverage
- Property insurance coverage
However, while your stuff is covered, your renter’s stuff isn’t. It’s a smart idea for you to require all renters to have renter’s insurance before they move in. That way, you’re not liable for a tenant’s belongings if they’re damaged.
5. Find Ways to Market Your Home
After you’ve made your home repairs and improvements, it’s time to make a list of what sets your home apart from all other renting opportunities. Maybe you have a working gas fireplace, a washer, and a dryer, or an attached garage that renters will find appealing.
Once you have that list, it’s time to place an advertisement on reputable websites and in local newspapers.
You may also want to work with a real estate agent or property management company to help you out. But keep in mind that they will charge a commission.
6. Create a List of Your Responsibilities vs Renter Responsibilities
You’ll have to decide what tasks you (or a property management company) are responsible for versus what your renters are responsible for.
Base your decision on how much time and effort you want to make versus how much money you’ll be paying to someone else to handle it.
Make Sure Your Lease Outlines All Expectations
If you own a single-family property, you may want to require a tenant to perform the following tasks:
- Mow and maintain the lawn
- Pay HOA fees
- Pay for garbage collection
All of this information needs to be outlined clearly in your lease agreement. Also, you need to decide what changes can be made to your home, if any.
A tenant may want to paint the rooms, install carpeting, or hang outdoor clothing hangers. All of this information needs to be included in the lease as to what your tenant can and can’t do, as well as what your tenant is expected to do.
7. Decide How You Want to Manage the Property
You may decide you want to become a hands-on landlord. That means you may end up getting phone calls at 3:00 am because the toilet overflowed.
It also means that if you end up with a bad tenant, it’s up to you to deal with them. And, if it comes to it, deal with asking them to vacate your premises.
Managing property is very time-consuming. And if you’re not very handy, you’re busy, or you’re not good at setting boundaries, it may make financial and emotional sense to hire a property management company to do it all for you.
Management Companies Perform Many Tasks
While management companies do cost money, they perform a wide variety of services such as:
- Finding tenants
- Collecting rent
- Handling repairs
- Maintaining the property
- Evicting and handling bad tenants
Management companies also know the laws in your state.
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Renting your home can be a great investment opportunity, but only if you walk into it with your eyes wide open.