What First-Time Landlords Should Know Before Renting Out a House
Whether you’re renting out your first investment property or you’ve become an accidental landlord, there are some things you need to know. Renting out a house can provide you with steady income, but it needs to be treated like a business from day one.
Before you list your property for rent, you need to ensure you’re following all federal, state, and local landlord-tenant laws, and have a plan for handling your landlord duties. Managing rental property isn’t as easy as it looks, but with the following tips, you can avoid some of the most common mistakes first-time landlords make.
1. Hire a property manager
Regardless of how many properties you’re renting out, a property manager will be your biggest asset. The amount of responsibilities you’ll have as a landlord can be overwhelming when you’re not used to managing rental properties. Certain mistakes can have serious consequences. For example, failing to handle certain tenant issues correctly can get you into legal trouble.
A property manager will take care of all your duties, including screening tenants, collecting rent, sending out notices, responding to maintenance and repair requests, renewing leases, performing inspections, and more. Having a property manager means your rental will run smoothly and be legally compliant. If you want rental income without having to take on a full load, hiring a property manager is a smart move.
2. Make sure you can rent your property
Before you think about accepting tenant applications, make sure you’re legally allowed to rent your house. It may seem like a given to rent any property you own, but it’s not always legal. Local laws, mortgage terms, insurance rules, HOA restrictions, and permit requirements can affect your ability to rent your property.
Look up your local laws to find out if you need a rental license, professional inspection, business license, or specific lease disclosures. For example, in most states you need a business license to run a rental property, even if you’re just renting to short-term tenants through Airbnb. Some HOAs prohibit renting and require homeowners to occupy the property. And if you don’t have the right kind of mortgage, renting your property will require making some costly changes.
3. Prepare your property thoroughly
Nobody wants to move into a dirty, rundown house. Make your rental property move-in ready before you list it anywhere. It should be professionally cleaned, functional, safe, and appealing. Prospective tenants will judge the property instantly, and if there are obvious issues they’re not going to be excited about living there.
Fix all major problems first, especially ones that involve safety. Repair broken locks, loose railings, faulty wiring, leaks, and trip hazards around the property before hosting any showings. Responsible tenants won’t be interested in properties that are falling apart.
Before putting your property up for rent, test every major system like the heat, air conditioning, plumbing, electrical outlets, smoke detectors, and appliances. When a tenant moves in, they’ll expect everything to work properly, and it’s also your legal duty to provide working systems.
Before a tenant moves in, take detailed photos and videos that clearly show the condition of the property and all major appliances. This will give you a solid record if any disputes over damage come up later.
4. Price the rent carefully
Many people price their properties too high and end up with long vacancies. Don’t make this mistake. Your rent price should reflect both local market rent and the condition of the property. However, sometimes pricing your property just a little under market rate can help get it rented faster. Just don’t set rent too low or you’ll weaken your cash flow and attract bad tenants.
To set your rent, look at similar rentals in the area to get an idea of what you should charge. Look at houses with similar square footage, bedrooms, bathrooms, parking, and yard space. If you don’t get any interest, you can always lower the rent a little and see what happens.
5. Screen your applicants to strict standards
Strict screening standards will protect your property and rental income. However, it needs to be fair and consistent for every applicant. Generally speaking, it’s standard to require each applicant to earn two-to-three times the rent, have a credit score of at least 650, and a manageable debt-to-income ratio. You should verify income with bank statements or tax documents, and follow up with past landlords and personal references.
Avoid costly small mistakes
First-time landlords are more likely to make small mistakes that can become expensive fast. Before renting out your property, make sure you have a plan to stay legally compliant and profitable while attracting reliable tenants.
