To rent out your house and make a good profit on the transaction, you must do your homework and become familiar with the intricacies of property ownership – even if you still make home mortgage payments. You must determine whether you have a landlord temperament, and whether you can take care of a mishmash of things ranging from legal aspects and general maintenance duties to screening potential occupants and establishing a good advertising campaign. Before you hop on the landlord train, figure out how much your total expense will be, that is, all the money you will dole out to keep the place going; estimate the rent price, typically by adding a markup, say, 25%, to your total expense; and compare your rent estimation with your total expense to make sure you are competitive with other landlords in your residence area.
Do I Have a Landlord Temperament?
You should not answer this question lightly. You need to have many skills and a unique mixture of temperament and business savvy to be an effective landlord. A very successful property owner I have known for years says a good combo for a landlord is: patience, entrepreneurship, empathy and resilience. I could not agree more. This quartet is what distinguishes great landlords from property owners who bow quickly to economic tedium, think they can make a quick buck but then realize it is harder than anticipated, treat tenants unprofessionally, and frequently resort to rent increases or seek tenant contributions to cover everything from general maintenance to improving the look-and-feel of facilities.
Patience helps a landlord understand a tenant's situation, work with him or her to find a solution, discuss the responsibilities of both the tenant and the property owner in a specific situation, and find an amicable way to fix the issue at hand.
Entrepreneurship falls within the economic savvy that keeps a landlord in business. It is the ability to analyze property operating costs and to detect whether the overall economy is on brink of a recession, or whether it is soldiering with full gusto toward a boom. Entrepreneurship is the jumble of skills that enables a landlord to gradually raise rent, communicating methodically on the uptick to prevent tenant anger and surprise – the kind of bad feeling that catches you off guard, for example, when you unexpectedly learn that next month's rent will be 5% more than what you are currently paying.
Empathy will help you, as a landlord, treat your tenants as customers – more, as family members. If you consider your property occupants as people you need to sustain your business, you gradually develop a sense of kinship that makes you appreciate their problems differently. My landlord friend says, for example, that one gesture that a resident would really appreciate is if you are flexible on your pet policy and allow the occupant to bring in his four cats and two dogs, even though your policy only allows one dog and one cat.
Resilience distinguishes property owners who can make money and stay around for a long time from landlords who show an amateurish bent when it comes to property management. Resilience is close to entrepreneurship, says my landlord buddy, but the key difference is that resilience would command that you stay in business and not sell a property even if the asking price is alluringly high and many bidders want your property. As an entrepreneur, you might want to sell the property and cash in, but your resilient spirit could ask you to stay the course and wait for even bigger returns on your investment.
What Advertising Strategy Do I Implement?
To woo prospective occupants, you must advertise – and do it well. The kind of advertising strategy you forge and implement is the product of many things, including your budget, the type of abode you are renting, what similar houses fetch in terms of rent, local rent-cap laws, and the type of tenants you are targeting. After nailing down these criteria and clarifying what you really want, you can advertise in media as varied as television, local newspapers, radio and the mixture of electronic publicity outlets running the gamut from social networks to Google Ads to mobile adverts to personal blogs to publicity on tablets and smart phones.
What Does the Law Say?
I suggest you hire an attorney to walk you through the legal aspect of renting your house. The attorney will explain to you whether legislation in your residence area favors tenants or whether it invariably veers towards landlords' interests. What I am saying is that laws vary by state and, sometimes, by municipality. Talk to your attorney to understand your responsibilities as a property owner, especially when it comes to things like:
- Treating all applicants with fairness
- Paying interest on tenants' security deposits
- Archiving applications for several years to show authorities your screening policy is effective
- Disclosing to rejected applicants the reasons for the denial, including credit score and background check.
How Do I Screen Potential Tenants?
Hire a fair-housing attorney to help you with the applicant screening process, to make it smooth and save you time and money, and to avoid the sort of nightmarish scenario that could develop and evolve into litigation if a prospective tenant claims that you rejected his or her application unfairly. The attorney will help you draw up a comprehensive application form replete with key questions about the tenant's occupancy history, income, employment status and family information – including pet ownership. Check out a sample rental application form to see the type and breadth of questions posed and the various elements needed from a prospective tenant.
What Maintenance Responsibilities Do I Have?
As a property renter, make sure to take maintenance responsibilities seriously – lest the law will. Maintenance means the way you keep the property fit for human habitation – and pet habitation, for that matter. It involves a hodgepodge of activities ranging from air conditioning, hygiene on the premises and plumbing to glazing, electrical wiring, tenant safety and the maintenance of such amenities as tennis court and swimming pool. If "handyman" is not a word you relate to, hire a specialist to perform general maintenance tasks. Various companies specialize in the trade and provide advice on everything from real estate management advice to property maintenance. Talk to your fair-housing attorney and ask him or her to refer you to a reputable yet affordable property manager.
Are There Risks to Renting My House?
Yes. The ups and the downs of the economy; trends in the real estate market, especially local buy and sell patterns; and, most importantly, the vagaries of human life all constitute risks you might incur if you rent your house. The most common risks include troublesome residents, liability issues, vacancy and profitability.
Profitability may be affected, and you could lose money, if the economy is in recession or employment trends in your residence area take a turn for the worst. If you cannot run your rental business successfully – meaning keeping costs low and rent prices reasonably high – your days as a property owner would be numbered.
Liability issues could arise in the course of the tenant-landlord relationship, and some issues might cost you dearly if you and/or the resident don't have the proper insurance coverage. If anything happens to occupants on the premises because of ineffective maintenance or inadequate safety, you are on the hook – and on your own. So talk to a real estate attorney, especially someone versed in the arcane of real estate management and property maintenance, to understand your risks and potential liability should the worse happen.
Vacancy is another exposure to consider when renting your home. If the vacancy rate is too high, you would lose money and may need to rethink your strategy. Vacancy affects profitability, which, in turn, affects the rate of return on your investment in the property. To prevent high vacancy rates, my landlord friend says you should give a reasonably long advance notice requirement – say, 90 to 180 days, depending on your state – constantly figure out the demand and supply of rental homes in your area, and work with a reputable real estate brokerage company that can launch a tenant-search campaign at a moment's notice.
Troublesome Occupants cause inconvenience on all matters of everyday life, both to you, the landlord, and fellow tenants. Disorderly residents may pay late, damage the property, run afoul of the law or the rental agreement, and refuse to pay. They also could:
- Violate the no-pet policy;
- Cause disturbance at night with, say, loud music and recurring marital altercations – the kind that happen when the husband says, "I'm right!" and the wife retorts, "No, YOU are wrong! And I am right!"
- Fail to abide by general hygiene standards
- Run up utilities bills – not a good thing if utilities expense is integral to the rent price
Dealing with disruptive tenants requires a diplomatic perspective, knowledge of the law, attention to detail, and an unyielding spirit. But talk to your attorney as soon as possible when you spot disorderly conduct on your premises.
The Bottom Line
Renting out your house profitably requires various skills that you gradually must hone, aided in that exercise by a team of specialists ranging from an attorney and a real estate agent to a property manager. To make the rental process a success, pay attention to things like your temperament, advertising tactics, legal implications and rental risks.