Are you thinking about turning your home into a rental property? Use these important landlord tips for successfully renting out your home for the first time.
There’s a lot to consider and to do before you ever hand the keys over to a tenant, so let’s get into it!
If this is your first time here, welcome! If you’ve been here before, thank you so much for coming back and spending your time with me. My name is Lindsay and I‘m proud to be your Anthem, Arizona REALTOR® with the Wise Move AZ Team at Realty ONE Group. On our blog and YouTube Channel we have a lot of fun talking about all things Anthem and real estate every single Thursday, and we absolutely love having you along for the ride.
Reasons to Rent
There are so many reasons why you may consider converting your home into a rental. You may be purchasing a new home and have the ability to keep your current home as an income property. You may not need your home for a year or more due to work, travel, or other opportunities, and don’t want to see it sit empty. Whatever the reason, you want to know if you can successfully rent out your home.
Long Term Rental
In this post, I am talking about converting your home into a long term rental. I won’t be touching on converting your home into an AirBnB or the viability of taking in roommates while you still live in the home. That’s a totally different kettle of fish. We’re talking about renting out your whole home, condo, or apartment for the foreseeable future.
Renting: It Means Business
Renting properties can be a great source of income. We’ve all heard quotes like “Landlords grow rich in their sleep”. The thought of owning a rental property on the surface may seem glamorous, lucrative, and easy. The truth is, it’s a business. Like any business it can succeed or fail because of so many factors, from supply and demand, to how well it’s run, and anything in between. Renting property is not a slam dunk, or some ‘get rich quick’ scheme. Adding a rental property to your portfolio can be a great way to diversify, but it isn’t risk free.
I want you to approach this decision with the professionalism it deserves, and I hope this post will give you the tools to do just that. So, let’s jump in.
Tip #1: Confirm your Ability to Rent
It would really suck to get too far down the road of converting your home into a rental, just to find out you aren’t allowed to rent your home. First things first, confirm that you are able to rent your home, and if there are any restrictions. If your property is located within a homeowners association, I want you to read your CC&R’s. If you want more information on HOAs, click to watch this video. The HOA may have rules around renting your home, including minimum terms, registering the property as a rental, and more.
Additionally, if you have a mortgage on your property, you may need to review your loan documents and advise the lender accordingly.
Lastly, are there any city or county bylaws that come into play? For example, do you need to register your property as a rental with the county? If you are in Arizona, like us, the answer is yes! Because, well, it’s the law.
Anyways, make sure you know the rules about renting your property before you go any further.
Tip #2: Build your Team
Alright, now that you know you can rent your home, let’s talk about building your team. If this will be your first foray into being a landlord, and you have limited experience in property management, I definitely recommend that you enlist the help of some professionals.
You will want to consider consulting the following:
- Real estate agent
- Property Manager
It’s important that you are working with people you trust to protect your best interest.
Real Estate Agent
A real estate agent will be able to give you a good indication of what the home can rent for in the current market, how long it will take, and will have ideas on what you can do to make your home stand out among the competition. Here in Arizona, as REALTORS®, we can also draft the lease and provide accompanying documents to protect your best interest. If you would like to view a sample copy of the Arizona Association of REALTORS’® lease, click here. Your real estate agent can also take care of things like marketing the property, scheduling showings, and more. Make sure you ask questions and understand what services they provide.
You may need to enlist the help of a lawyer if you wish to draft your own lease, or if you wish to have them review the standard form lease. Talk to them about whether the rental property should be held in your personal name, in a trust, or as its own entity. Weigh out the costs and the liability of renting your home in detail.
An accountant will help you to understand the tax implications of owning a rental property. Will the rental income push you into a new tax bracket? Do you need to file a separate return? ..and much more.
Handyman & Other Service Providers
If you’re not all that handy around the house, you may want to make friends with a local handyman and other home service providers. Things will inevitably go wrong with the house when you have a tenant and you want someone you can rely on to make repairs quickly and affordably. When our rental property flooded on the Sunday night of a long weekend, we were so glad that we had the name of an awesome plumber to call on to fix it.
Property managers may or may not be something you want to entertain. Personally, we don’t use a property manager at our rental. We are close by, and we have the time and ability to deal with issues as they come up. That being said, if you have no interest in managing the property, you don’t have time, or you will be living far away from your rental, I recommend that you consider hiring a property manager in some fashion. Some property managers are full service (i.e. you won’t need any of the other professionals we listed here), while others offer more a la carte services. If you are going to use a property manager, do your research, price them out, know what is included, and get really comfortable with everything before you sign.
Tip #3: Ensure Financial Viability
Chances are you’re renting your property because you want to turn a profit, or at least break even. I don’t want to make assumptions for you, but I don’t want to be loosing money when we rent out one of our properties… just saying!
If you have enlisted the help of a real estate agent and an accountant they will be able to help you with estimating your costs. If you are going it alone or you just prefer to do the math yourself you will need to estimate the following:
- Expected income
- Mortgage Payments
- Property Taxes
I like to draw up a five year projection. Don’t forget to make adjustments for increases in things like insurance, but also for the fact that you may be able to charge more in rent over time.
Personally, I like to draw up a spreadsheet that shows the net operating income, the CAP rate, and the cash on cash return. These stats can help you to compare the return on the rental, to things like mutual funds, for example. I was thinking I would run through how build my spreadsheet and run my calculations in this post but it’s already getting longer than I had anticipated. If you would like me to tackle this in a future video/blog post, leave me a comment below and we’ll get it added to the list.
Anyways, the goal is to get really comfortable with your numbers and the anticipated return. Do you feel like you are making enough to justify the work? If yes, keep going!
Tip #4: Get your Home Ready
Now, that you’ve verified the viability of your rental, it’s time to get your home ready. Personally, I want to hand over a home that looks well cared for to my tenants. This way, the tenant is more likely to show respect for the space. If you hand over the keys to a home that is in disrepair, it’s not likely that they are going to show the same level of care.
Do the Work
We did a whole video on getting your home ready to sell in 30 days or less, which you can watch by clicking here. While you aren’t getting your home ready to sell, the process of getting your home ready to rent has a lot of similarities. You want it to show it the best possible light so that it will be rented quickly and for top dollar.
Repair, Inspect, and Clean
If there are repairs you have been ignoring, make them now! If you patched the wall in the guest bedroom, but never got around to painting it, now is the time. I also want you to have the major items like HVAC and the roof, inspected before the tenant arrives. Also, I know this is stating the obvious, but the tenant can’t move in if the house is still full of your stuff, so make sure you are completely out before the start of the lease. Did I mention cleaning? I recommend having your home professionally and thoroughly cleaned before renting it.
If you have a pool I want you to do some research or talk to your lawyer about the liability. There may be laws that require you to put up pool fencing or other safety measures. Even if it isn’t the law, you may want to consider it. You definitely don’t want to be responsible for a child drowning in your pool.
Tip #5: Plan for Processing Applicants
Now that your home is ready, you can officially go live with your rental listing! Congratulations! It’s all smooth sailing from here, right?
Before you get too excited, we need to come up with a plan for processing applicants. With any luck at all, you will go live with your rental listing and you will receive several applicants who want to rent your home.
It is really important that you develop a system that will be applied fairly and consistently to all applicants.
It is illegal for you to discriminate in connection with housing because of an individual’s race, color, religion, sex, national origin, familial status or physical or mental disability. If you don’t have a standardized system you could be discriminating, whether you meant to or not. Be careful.
If you are working with a REALTOR® come up with your process together before you even go live with the listing. My recommendation is that you have all interested parties fill out an application for occupancy, followed by completing a background check by a qualified third party. If you do receive multiple applicants, how will you decide between them? My recommendation is usually to proceed on a first-come, first-served basis. I.e. the first applicant to successfully and satisfactorily complete the steps rents the home.
Draft your Lease
I also, recommend that you have sample lease documents drawn up for potential tenants to review beforehand. The lease documents need to be clear about what is included in the rent, what isn’t, and who is responsible for what. For example, are any utilities included? Is the tenant responsible for landscaping? Who will take care of pest control? Will the tenant have access to community amenities? If so, is there an additional charge?
The more you can prepare before you start receiving tenant applications, the better. Once you receive applications, things will move quickly, and if you haven’t done your research or prep work beforehand it can be overwhelming. Take your time, and put in the effort up front. It’s worth it.
So, there you have it! Will you be converting your home into a rental soon? If you would like to grab a sample copy of the Arizona Association of REALTORS® lease, click here. If you are thinking about converting your Anthem home into a rental and would like our help getting it ready, bringing it to market, and drafting the necessary paperwork, send us an email at Team@WiseMoveAZ.com.
Lastly, if you want to watch the video I mentioned previously about getting your home ready to rent, click here; or if you want to tackle some DIY home improvement projects to help your home stand out among the competition, click here.
Enjoy those and I’ll see YOU next Thursday!