Renting out a house can seem like an intimidating idea for some, especially if you do not have the knowledge or the experience in the real estate market to invest in a rental property.
When most people consider renting out a house, a number of deterrents come up to their minds. These often affect people’s decision and their perception of what renting out a house could mean, making them focus on the difficulties associated with it and the legal and financial aspects that they might not have sufficient knowledge of. All of these result in people’s missing the opportunity of making money in real estate investing.
This blog aims to guide you through the most crucial steps of renting out a house, while also giving you some tips and advice on the aspects of this process which usually deter people away from buying or owning a rental property, such as the difficulties of being a landlord, managing a rental property, and handling tenants.
Related: Should I Sell or Rent Out My House?
Renting out a house has never been easier. Just follow these steps:
The first step is asking yourself, why rent out a house?
There are a number of good reasons for renting out your house:
- A house is generally considered as a liability to the owner (meaning it costs you money on regular basis). However, renting out your house allows you to transform your liability into an asset (meaning it now makes money for you).
- If done correctly, renting out a house allows you to generate rental income through tenants, which will hopefully cover your monthly expenses including the mortgage payments and other fees. You could even have a monthly positive cash flow. Meanwhile, the investment property will have the opportunity to appreciate and increase in value, which means that it will make even more money for you once you decide to sell it.
- Renting out a house simply gives you a fixed asset that can be used for other means, such as living in it, in the case that you decide to stop renting it out.
Now that you have considered the possibility and have decided on renting out a house, what’s your next step?
Evaluate and Improve The Condition of the House
Naturally, you will want your rental property to be of a certain quality to attract certain tenants. This is where you work on improving the house and renovating it. Do you want your house to be furnished or not? Do you think you should install a walk-in closet for your one-bedroom apartment? How much money are you willing to spend on renovations and improvements, and how much value will these add to your house?
These are all real estate questions that you should be asking yourself when it comes to the condition of the house that you’re trying to rent out.
Keep in mind that the quality and state of the house should not necessarily depend on your own preferences, but rather on a comparison with other similar properties in the area and the level of quality that they have.
Consider Property Management
If you choose to hire a professional property manager or a property management company, then several other aspects of renting out a house will suddenly become much easier… but at a cost.
A property management company will manage certain aspects of your rental property (depending on the service that you decide to go with, different property management companies offer different services or packages to their customers), ranging between:
- Advertising your property and marketing it.
- Carrying out the process of signing leases.
- Collecting rent.
- Keeping track and records of finances.
- Scheduling maintenance and repairs.
- Issuing legal notices and keeping track of any changes in state laws and regulations.
- Filing for evictions (they may refer you to a good real estate lawyer, but they will not cover the fees).
Of course, no property management happens without a fee. So, before making the decision of whether or not you want to hire a professional property management company, you should keep in mind that property management companies usually get paid an average of 10% of the monthly rent. So, if you believe you can carry out these duties on your own and save that extra bit of money, then by all means go for it.
Decide on the Amount of Rent
The main reason for renting out a house is to generate a positive cash flow. This cash flow comes from tenants who are paying rent. This rent is decided by you as a landlord, and it should cover all the monthly expenses of owning the property and maintaining it, in addition to other considerations such as mortgage and taxes.
So you might be thinking to yourself: I’ll just ask for a higher rent, this way I’m guaranteed to cover all the monthly expenses as well as generate a rental income for myself. But, as said before, the rent comes from tenants who pick your house from a rental market full of other houses. This means that they probably have a number of other options to consider in the same location. And the number one factor that people usually base their decisions on is the amount of rent.
Before setting your rent, you will first need to do some real estate market analysis and research: compare your rental property with other similar rental properties in the same area. Find a rental property that is doing well (with a high occupancy rate) and try to figure out what value it provides in exchange for its rent. Is it providing good value in exchange for a slightly lower rent? Is it providing a great value for a slightly higher rent? What makes it tick? And how can you make your income property tick as well?
There are many websites and services which can provide you with the data and analytics needed to compare your property and come up with the most optimal rent for it. Examples are:
- Airbnb: A great option if you’re looking to rent out your house to short term tenants, and it can be used as a medium for renting out a house.
- Craigslist: Craigslist is one of the most popular websites when it comes to rental property listings and comparisons.
- Mashvisor: Mashvisor is the perfect tool to be used whether you’re trying to find an investment property to rent out or you’re trying to compare your rental property with other similar properties in the same location, in addition to its ability to provide you with real estate analytics and raw data numbers that can help you decide on the optimal amount of rent for your rental property.
There are a number of other steps that need to be considered when renting out a house that revolve around the tenants, the process of selecting them, their applications, background checks, and other important factors. For a detailed guide on the process of choosing tenants for your rental property, read How to Pick the Perfect Tenant from Multiple Applications.
Renting out a house is not as intimidating as it seems. If you put the right amount of time, effort, and research into it, you should be able to rent out your house easily and smoothly.
Of course, life isn’t perfect, and neither is the process of renting out a house. It can get messy sometimes, especially when you’re first starting out. However, if you focus on the points mentioned above, you should be able to make the correct considerations and foresee any issues that may arise before they could affect your real estate investment.