If you are planning to move out of your primary residence – be it a single family home or an apartment – and convert it into a rental, you are likely to assume it’s going to be an easy job. You’ve been living in the property for many years and everything that a prospective renter will want is already in place. Right?
Yes, it’s true. If you’ll buy a new rental property and stage and prepare it for tenants, it’s possibly going to take more efforts and time compared to converting your existing home into a rental. However, there are still several important considerations for you to make before you take the plunge:
Change your insurance coverage
Your first step should be to discuss the implications of your decision of converting your home into a rental with your insurance agent. Rental property insurance is different from homeownership insurance. While homeownership insurance generally covers personal belonging, rental property insurance will cover only structure. You will need additional coverage for large items that you plan to leave at the property. You can also consider increase your personal liability coverage due to higher risks involved with managing a rental property.
Do you need any permits?
Check with the local authorities if you need a permit before you can convert your home into a rental property. Generally, a government inspector will examine the property for security clearances. Make sure that you have secured the permit in order to avoid any potential legal problems in the future.
Know your tax liabilities
Rental income is taxable, but you can deduct the expenses from the income to lower the tax bill. The money spent on maintenance, repairs, property management, insurance, mortgage interest and even travel expenses are deductible. You can also deduct depreciation. You should consult with a tax adviser to know your liabilities and entitlements.
Stage and prepare the property for tenants
Even if you think that you are aware of all possible problems with the property because you have been living in it for years, you should get it inspected by professional home inspector before renting it out. If you come across any problem like roof leaks, clogged gutters, leaky faucets or pipes, or burnt-out light bulbs, get them repaired.
You should also make sure that all safety equipments like fire extinguishers and smoke detectors are in place and in working condition. You should also clean the floors, windows, blinds, and carpets because a dirty place can easily turn potential renters off.
After taking care of the above-mentioned tasks, you will then determine your monthly costs and evaluate comparable rental properties in the area to figure out the list price. You will need to determine if you would need to hire a property management agency to look after various tasks like tenant screening, maintenance, repairs, rent collection etc.