It may not always make sense to sell your home. If that's the case, renting it could be a good option. But understanding the rental process and using expert help will alleviate extra stress.
Dr. Danielle Babb is the author of The Accidental Landlord. She shared five top tips for homeowners who are considering renting their home.
Emotionally disconnect from your home. As you can imagine, this can be a very difficult thing to do -- especially if you've lived in the house for a long period of time and maybe your kids have grown up in it -- but it's an important step.
“It can cause some emotional distress and you may find yourself too attached for the new tenants liking and their privacy rights. When you make the decision to rent out your home, it needs to feel similar to how it would if you were selling it to someone else,” says Babb.
Screen your tenants. Don't fast forward to thinking about having wonderful tenants in your home so much that you skip over the screening process. Attending to this process alone, can eliminate huge headaches in the future.
Babb cautions landlords about scams aimed at landlords who don't screen. “There are actually "professional tenants" out there that do nothing but find susceptible landlords, usually those renting without a management company, that don't screen tenants. They will give a deposit, and live rent free (not paying rent), knowing you won't know what to do or how to kick them out,” says Babb.
She outlines several steps in her book that help landlords learn more about removing tenants but she says, “The most important thing is not to let the bad ones in to begin with.”
Babb says in her book as well as on the Landlord Protection Agency website there are screening worksheets that help landlords know what types of questions to ask and what red flags to look for.
“For instance, are they not taking care of their car? Maybe they won't take care of your house either and make sure you call those references! Compare what they tell you to what is on their credit report, and make sure you do a credit and background check. Know who you are renting to, and don't be afraid to say no,” says Babb.
Know the law. There are specific laws to protect the tenant. How much the tenant is protected differs greatly from state to state.
“The laws you must abide by are the laws the home is in. You have to tailor your lease or rental agreement to that state's rules. You can easily find these on the Landlord Protection Agency site and then modify the lease agreement accordingly,” says Babb.
To learn more visit the LPA: thelpa.com
She says, “Common changes are how much notice you must give for them to vacate, the maximum deposit you can collect, and notifications for entrance.”
How much rent? “It's easy to say, 'Okay, I have $2000 in expenses, Ill charge $2100,'” says Babb.
But just like when selling your home, it doesn't work that way.
“The market may only bear a rental comp of $1500. You have to make the decision if that $500/month is worth the long-term gain or whatever your initial reason was for holding rather than selling,” says Babb.
Real estate agents can be a great resource for helping to determine what the best rental price should be. They can show you homes in the area that are also for rent and, just as when selling, taking a look, or at least, driving by the homes gives you an idea about the competition.
“You may get more if you leave it furnished; sometimes you can lease furniture and up-charge and make a profit on it, particularly in areas where young families are starting out or college students frequently live. Just be sure you price it right -- all of those extra months on the market eat into that profit or breakeven point. No matter what, be sure you collect a sufficient deposit -- usually one months rent, plus a pet deposit and additional monies for other reasons, like appearing to be a risky tenant,” says Babb.
Who is responsible for what? Important, but tricky question. Depending on which side of the fence you sit, you, of course, may see this differently.
Babb says, “If something breaks, you have an obligation and lawful duty to fix it immediately if it affects quality of life or poses a hazard. But, if the tenant just wants something upgraded, that isn't a requirement. You have to walk the line between having your tenant stay long term because you're easy to work with and paying too much for little things. You can let the tenant make upgrades that they pay for if you wish.”
Babb adds that incentive programs also help a good tenant to stay longer. “For instance, I give my tenants a $25.00 or $50.00 off rent coupon if they pay 5 days early and pay direct deposit. This saves me considerable time.” She says landlords should beware of partial rental payments such as a tenant paying only $100. “If a tenant sends you a partial rental payment, say for $100, and you cash it, it may start the clock ticking all over again on evictions! These are the types of things that professional tenants do.”
Renting doesn't have to be a scary process; it does have to be a well-researched and carefully planned process to ensure the best outcome for all.