If you're planning to move your family to your new residence, you may be worried about what to do of your old home. Even if you’re thinking to put the property for sale, you may also consider an option that can ensure some good cash flow each month. That's turning your home into a rental property.
Typically, using your old home as part of your rental investments can be a great idea. As more people are looking for places to stay, it can be an excellent opportunity to get better returns than any other investment vehicles. However, the conversion process requires several considerations. At some point, you need to get your real property physically and financially ready before accepting tenants.
Here's how you can convert your old home into a rental property:
1. Secure The Necessary Permits
Although the requirements for running a rental property differ from one locality to another, you're still required to secure a permit when you consider this conversion. This permit is issued to ensure the safety of your property and your tenants.
Usually, an inspector from the government will check the house for some safety hazards such as heating, electrical, and other health and safety concerns. Thus, getting your rental property checked helps in complying with the necessary permits.
2. Update Insurance Coverage
Before you entirely turn your old home into a rental property, first talk to your insurance company, to know the status and standing of your current insurance. Since you'll have other people on your property, you must take care of their safety and security throughout their stay. This implies that if any mishap happens to them during their stay, it’ll be your primary responsibility.
For example, if they get injured because a tree falls on the home, you may be at a risk of getting sued by the tenant for negligence. Moreover, you’ll have to compensate by extensive repairs in the house, to make it suitable for renting again. Because of these circumstances, it's best to secure the necessary insurance policies for a rental property.
First, you can ask the insurance company to switch your current insurance to rental property insurance. This will ensure the building is covered if something terrible happens.
Second, you can also get personal liability insurance to protect yourself in case your tenant will sue you.
3. Get Familiar With The Tax Changes
Since you're going to convert your old home into a rental property, it's crucial to learn and understand the implications of this transition. Before anything else, you should speak to a tax professional who can explain your tax rates once you set up your rental property.
Typically, running a rental property allows you to make money, and when you do so, the income you get from the rentals are taxable. Thus, this taxable thing can potentially change your tax rate going forward.
Fortunately, even if you pay taxes for the income you get from your rental property, you can still save money since you're allowed to deduct some deductibles from your tax liability. These include utilities if you pay them, property taxes, mortgage interest, repairs, homeowners association fees, and many more.
4. Determine What Needs To Be Fixed
Now that you've decided to make your old house into a rental property, the first thing you should do is check what needs to be fixed. Since you've lived there for a long time, there might be some wear and tear problems that should be fixed before offering the place to your potential tenants. Some ask a home inspector to assess your home and determine the repairs to be done.
Once you've got the report from the inspector, contact local contractors, and request quotes. Although the repairs might cost you some money, it's undoubtedly part of the process. If you fix everything before the tenants move in, you can save yourself from costly maintenance that might arise once your house is occupied.
5. Consider Making Upgrades
Aside from fixes, it's also vital to make cosmetic updates to your home. When you give your old property a makeover, you can rent it out fast at a premium price. And when your potential renters feel like the place is the best among others, they'll also be willing to occupy it even at a higher rate.
Hence, get started with the upgrades by cleaning the whole place, giving it a fresh coat of paint, and replacing everything that looks outdated. When it comes to the makeover's costs, you don't need to worry because you can incorporate your expenses in the rental rate to get your investments back.
6. Figure Out How Much To Charge
Turning your old home into a rental property means determining how much you want to charge your potential tenants. Since you've decided to make money out of your old house, it's crucial to figure out the right amount to get more rental income.
Below are some ways to help you find the perfect rates for your property:
• Perform Some Market Research – If you’ve no idea about what to charge your tenants, you may do some market research to determine the rental rates within your area.
• Consider Your Costs – If you've made some repairs and upgrades, it's vital to consider these costs in knowing the right rental rates. Besides, you should add these expenses so you can get the most out of your returns.
• Work With A Real Estate Agent – Talking to a professional can help you find the best rate. They're willing to give you a range of possible rental rates in your area and show you some computations.
7. Set The Rules
Of course, when you turn your house into a rental property, you'll become a landlord. As a landlord, it's your responsibility to ensure the smooth operations of your rental business. That said, it's best to set your rules right from the beginning. Ensure that the rules are clear and universal to prevent any discrimination that can lead to lawsuits and other legal problems.
Moreover, find time to know the law before accepting any tenant. Check the local and state laws in your area concerning rental properties and tenant rights. Be sure you understand the law and follow them religiously. That way, you can manage your rental property profitably and free from legal troubles.
Bottom Line On Home Rental Properties
If you decide to turn your old home into a rental property, take some time to know both the ups and downs of the transition. Just like other businesses, running an investment property takes a lot of planning before you consider it a success.
Thus, if you want to venture into this kind of real estate investment, keep these tips in mind to know what to do when you start the property conversion process.
