If you can't sell, perhaps consider renting your house
Renting Your House 101
by Jean Knight Pace
Becoming a Landlord
Renting a Spare Bedroom
When home prices began to fall a few years ago and qualifying for a loan became more difficult, more people began to rent than buy. If you have a home that you want to rent out, these guidelines will help make renting your house as safe and simple as possible:
- Pricing your house - Check fair market values for rent and deposit by asking a real estate agent, searching the Internet, or simply calling a few places in your area that are comparable in square footage and number of bedrooms. Generally, the deposit is the value of one month's rent.
- Advertising - Your best options are the newspaper, Craigslist, or a big sign with your phone number posted in front of the rental.
- Rental application - This form asks for personal information, such as phone numbers, driver's license numbers, employment and rental history, and a disclosure of past evictions. You can find a rental application online. I like Accurate Credit Bureau. They provide a free application, and if you want to pay to check a potential renter's credit, you can do that too.
- Background check - The simplest, cheapest way to do this is to take the name and driver's license number or social security number down to your local courthouse. If the renter is local, you will have access to criminal records and any reported evictions. If you want to be more thorough, you'll probably have to pay to run a background check using the social security number. This can be done at the above site for about $20.
- Contract - At Office Depot®, there's a whole section of various documents for sale. Buy one that says "Residential Lease." Voila. You can also go to the Internet and get similar contracts for free. I found ones that looked good at www.lectlaw.com/forms/f091.htm and www.lawdepot.com/rental-agreement. Otherwise a lawyer can draw one up.
- Taxes - Be prepared to soften the blow by keeping track of all tax-deductible expenditures. Mortgage interest (not the principle), property taxes, and repairs are all deductible. You will also be able to take a depreciation on your house. Also, it's time to hire an accountant (one who deals with individuals, not corporations); it will save you money.
- Improvements to make - Or not. Think about where you live and what kind of renters you want to attract. Think about how much you might need to fix once you've got people living in the house.
- Renting your house from afar - Before you move, be sure to have the names of good, reliable handymen. You may also consider hiring a property manager, although they usually require about 10% of rent.
- Section 8 - This means that the renter's rent is subsidized or paid in full by the government. It means you'll always get paid on time (thank you, Uncle Sam). The drawbacks are the red tape (thank you, Uncle Sam) and the fact that if somebody trashes the place, the government won't be picking up that tab. So screen your renters carefully and get a deposit, which the government doesn't cover.
- Be Aware and Beware.
- Laws vary from state to state. Be sure your contract is good for wherever (Office Depot®) or specific to your state (often when you find contracts online, they have you search by state).
- Check local laws concerning rentals. Be sure you're obeying the laws concerning screening tenants (be sure to follow discrimination laws, etc.), whether you're allowed to rent in certain neighborhoods (some have caps on how many rentals are allowed in an area), and how many tenants are allowed in a house (six adults may not be allowed to live in your two-bedroom rental). If you're having trouble finding information, a local real estate agent should be able to help or at least direct you to someone who can.
- You may not discriminate according to race, sex, religion, etc., but you don't have to accept a renter with a bad history or even one that you have a bad feeling about. It's your house and your choice.
- Know the local laws regarding evictions (How many days notice are necessary? Does an officer need to be in attendance?), and if the unfortunate need arises, follow them closely.
- If you're currently living in your house, be sure you know whether or not you'll be able to buy in your new area. Some lenders require one to two years of rental history for investment properties, meaning you won't be approved to buy a house if your renters have only been there for a month. You may have to rent for a time or put more money into a deposit.
Take the Next Step
- Make sure you're not overpaying on your mortgage. If you haven't looked for a lower mortgage rate in the past year, use our simple tool that compares different lenders to see what your monthly mortgage payment could be. It's private, only takes a minute and could show you how to save thousands!
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