Turning your primary residence into a rental property can bring in extra income, but also means major changes to your lifestyle. Renters in numerous large metropolitan areas outnumbered homeowners in previous years which indicated a major shift in the housing market. There are several factors to consider when looking at converting your home into a rental property.
– Residency requirements. It’s important that you actually live in your new home for a period of time before renting it out. You can be charged with fraud and possibly be forced to pay the mortgage balance in full if your lender discovers that you never lived in the home as the primary resident before renting it out. It’s best to live in the property at least a year and then contact the lender to let them know that the property is no longer your primary residence. You may have some leeway if your job suddenly moves you out of the area.
– Maintenance and repair. If your home is 15 years old and all the appliances, furnace, AC and water heater are original, then those will need to be replaced in the next five to 10 years. If you have carpet now that needs to be replaced, laminate flooring is affordable and is favored by tenants over carpeting in most cases. Standard safety features like smoke and carbon monoxide detectors should be installed and functioning properly.
– Management. Property management costs between 8 to 10 percent of your gross monthly rate. The property manager will probably take at least half of the first month’s rent to pay for finding a tenant and for paying Realtor commissions.
– Personal time. Being a landlord is part time job whose salary will dependent upon how much preparation and effort you put into the task. Learn about leases and determine what terms you would want to have about length of occupancy, pet policy, and any other restriction you want to include. Part of your research should involve going to look at rentals which would be your competition and see how yours stands up.
– Aesthetics. Anything you repair or upgrade adds value to the home and makes it more appealing to those who are comparing your rental property to others. Make sure it is clean, freshly painted, and anything that looks severely dated should be replaced providing the cost isn’t outlandish.
– Taxes. With a rental or any property investment, there are specific tax rules that must be followed. Hiring a good real estate CPA will prevent tax and financial issues in the future.Dov
If you are converting your home into a rental, be sure to remove everything that will not be included with the rental, including appliances. If you are moving to a smaller residence, consider using an affordable storage space to keep items you are not willing to part with but do not have the room for.
If you decide that turning your house into a rental is right for you, take some time to think through the challenges. Turning your current home into an investment property can have some appealing advantages, but it takes proper planning to make it a reality. Make sure you do your due diligence before moving forward with this option.