From Homeowner to Landlord
4 Things You Should Consider Before Turning Your Primary Home into an Income Property
There are many reasons why homeowners become landlords. In fact, in 2018 the IRS reports that over 10.6 million Americans included rental income on their tax returns! One group are people who went into homeownership with the goal of one day becoming real estate investors, perhaps buying a duplex and renting out one side while living in the other before renting out both sides and going on to buy a second property, and so on.
The second group are people who become landlords because of a life circumstance or other reason such as, getting married, securing a job across the country, inheriting a house from a family member, moving back home to take care of an aging parent, or a market downturn whereby it’s a better time to rent than sell. Whichever group you’re in, there are some important considerations that can help you make the transition to being a landlord.
#1 Check With Your HOA
Some HOA’s have very strict homeowner guidelines. They may have specific requirements for aspiring landlords. Some prohibit renting; others may have a cap on how many homes in the neighborhood can be rented. It’s best to check HOA policies before deciding to rent the property.
#2 Run the numbers
Running the numbers means weighing up all the costs of becoming a landlord. Find out comps in the area to determine a fair, competitive rent. Decided whether you will advertise or engage an agent and note associated fees. Talk to your CPA about tax implications related to your decision and determine the cost of converting your insurance from a homeowner policy to a landlord’s policy. Also, cost out coverage on appliances in the home.
At the very least, you need to cover all your costs and be able to build a reserve for repairs and maintenance, and for vacancies when they happen. The better scenario is one where you can do this plus generate additional income to boost your budget.
#3 Decide how to manage your rental
Being a landlord does involve work. From advertising your rental, screening tenants, handling move-ins and move-outs, managing maintenance or repair, and even dealing with occasional legal problems or evictions if things do go wrong. Managing your property by yourself will require a time investment that you will have to reconcile with your other work and life commitments. Hiring a property manager will cost money and will reduce the overall income from your property but can save you a lot of time and make up for expertise you don’t have.
#4 Find the right tenant
Of all the tasks involved in being a landlord, the most critical of these is finding the right tenant. Proper tenant screening and finding a great tenant that pays their rent on time, stays a long time, and takes good care of your property, makes a huge difference. A difference to your stress levels, your sanity, and your bottom line! Having clear, verifiable criteria and a consistent screening process are vital. Make sure to attend my upcoming LIVE, FREE webinar about tenant screening on August 3, 2021, at 7pm (EST) where I will be sharing my tried and true methods for getting great tenants! A FREE ebook comes with the session.
Sources:
https://getflex.com/blog/landlord-statistics/ – I liked the statistics I found here but I was not able to
verify the IRS and Census statistics quoted except for…
https://www.irs.gov/statistics/soi-tax-stats-individual-income-tax-returns-publication-1304-complete-report (…the 10.6 million filers who declared rental income, see page 22)