have you been bitten by the income property bug, or are you moving and planning to rent out your old home to a new family? Or do you simply want to lease out your home on weekends or when you’re away on vacation? There’s a lot to consider before you take the leap into becoming a landlord. Get the know-how now, and avoid surprises later.
Don’t Be In It For Instant Money
Of course it’s about the money. But the money is probably not going to be rolling in for a while. If the home is paid off, you’re going to be enjoying the dough a little bit more than someone with a mortgage. When I decided to move and rent out the home I owned (with a mortgage), I knew most if not all of the rent was going to be filtered back into the banks and taxes for 15 more years. The opportunity for equity is there, especially if you can use the rental income to pay off your loan faster, but you may not have that luxe vacation funded by your rental property for quite a while.
Don’t Have Heart
This critical comment was given to me early on when I decided to rent my home. It didn’t make sense at the time, but it does in hindsight. To effectively and objectively manage the property, it’s helpful to position the property as something bigger than just you. This is no longer your house, this is a house owned by a business — with legal obligations — and you need to separate the business needs from emotional needs, such as if a tenant is a week late with rent.
As part of the rental process, you’ll consult with lawyers, insurance companies and accountants, and you should use their business advice to help guide you through complex (and emotion-driven) situations in defense of sustaining the business. For example, you can say “I’m sorry, I’m required to charge you a late fee if rent is more than 24 hours late. It is processed by my accountant, so I don’t have control over it”. Or, “Unfortunately, our insurance doesn’t cover damage caused by BB guns, and if the behavior is reported again I will be required to evict.”
Have an Impeccable Bookkeeping Process
For a small-owned operation, bookkeeping is something you can easily organize yourself. Keep a detailed archive of all events — things you purchase, vendors you pay and materials you purchase to maintain the home.
Know Housing Laws, and Consult With a Lawyer
Applying for a Certificate of Occupancy (COO) will introduce you to all housing laws you need to be aware of before you rent your space. The office staff at your town or city’s housing department will be a wealth of knowledge, so befriend them, and always be on the up-and-up with respect to inspections and licenses.
Consulting with a lawyer is always advisable too; you may not need to retain them, but having someone reviewing the language used in your lease and terms will surely put you at ease.
Avoid Renting to Family and Friends
Or, do at your own risk with firm guidelines and expectations. It’s easier to evict a stranger.