Did you know there are nearly 48.5 million rental units in the United States? If you’ve ever paid rent in a big city, you know how profitable a rental unit can be.
Now you own a house of your own, and you’re ready to move. Rather than put it on the real estate market, you’re thinking about making it pay over the long term and converting it into a rental property.
Sounds easy, right? Not so fast. There’s a lot you need to do to prepare your former primary residence for a rental property.
Obtain Licenses and Inspections
Turning your home into a rental home isn’t as easy as listing it for rent. To be a landlord and rent your property, you must first get all the licensing and inspections.
Depending on the state and city your rental unit is in, you’ll need a landlord license to transform your primary residence into an investment property. This licensing may include a business license and/or a rental license.
To turn your house into a rental unit, you’ll also need the proper municipal inspections and permits. An inspector looks at the residence to determine whether the building suits occupancy.
Do You Want to Be a Landlord?
The life of a landlord isn’t just collecting rent. You put your property and your mental well-being at risk.
Appliances break, pipes burst, and roofs leak. Tenants might not pay their rent on time (or at all), and then you’re involved in eviction proceedings.
In other words, owning a rental house and being a landlord is another job. Do you have the personal bandwidth to take this on?
When you file the proper licensing paperwork to turn your home into a rental unit, your homeowner’s insurance policy covering your primary residence voids.
You’ll need to shop for landlord insurance that includes dwelling insurance, water or flood, and rental income insurance to cover lost rent.
Get Your Taxes Straight
Investment properties follow different tax rules than primary residences. Interest deductions change, and different laws apply.
For example, under current tax laws, you can deduct mortgage interest. You can also write off any other occupational expenses like repairs and maintenance work.
Before you begin renting your home, consult your accountant to get your taxes in order.
Prepare for the Rental Market
To make money, you need to establish the quality of your place so you can charge on the high end of the prevailing rental market.
Make any renovations necessary to make your house more attractive. This might mean updating the kitchen, the floors, and or major appliances.
The next thing you need to decide when you’re offering your home for rent is whether you’ll hire a property manager. If you do, you need proper worker’s compensation
Interest Rates on a Primary Home vs a Rental Home.
Primary home mortgages typically have a significantly lower interest rate than if you tried to buy a property strictly as an investment property. The mortgage company typically requires you to live in the home for 1-2 years before turning it into a rental. Once the 1-2 years is up, you can rent it out while still taking advantage of the lower interest rate. Plus, you can then purchase your new home at a primary rate as well.
Turn Your House Into a Rental Property
Are you planning a move? Rather than sell your house, why not turn it into a rental property? It’s a great way to get involved in real estate investment and make money.
Are you ready to be a landlord? Get your unit on the market with us!