Content provided courtesy of USAA.
Renting out your home before a permanent change of station move may seem like a good idea. That is, until the tenant trashes the house, inside and out, and you have no one to oversee the repairs.
Sure, renting out a home can lead to plenty of headaches, but there may still be good reasons to stick that "For Rent" sign in your front yard, says Mark Burrage, director of home advice for USAA. They may include increased cash flow, potential tax benefits, appreciation over time and flexibility to sell later. "It can be very rewarding, if you find ways to mitigate any risk involved," Burrage adds.
Mitigating risks means having a plan. Save yourself time and trouble by understanding the pitfalls of converting your home into a rental property. Here are three things aspiring landlords should know.
Know the costs.
Research rental rates in your area to know what you can ask and whether listing your property is even worth the effort. Depending on the market, you may not be able to cover your monthly mortgage.
To help protect your investment, hire a quality property manager — someone with proven experience, not just the cheapest option — and understand what services they provide.
Don't underestimate the costs for repairs and maintenance on the property, including possible legal fees for enforcing a lease. Also be financially prepared for those times when the house is not rented.
Know the tenants.
Just not too well. Renting to friends or family may make it difficult to enforce the terms of the lease. Instead, get to know a tenant by properly screening his or her credit report and running a criminal background check.
Encourage your tenants to purchase renters insurance. Find a trusted agent — it can be a friend or family member — within proximity of the home, someone you can rely on to assess damage or other major issues with the property.
Know the law.
Consult with a certified public accountant and look up all the relevant tax codes related to investment properties. Research federal, state and local housing laws. Avoid handshake deals and amendments not in the lease agreement, because you won't be able to enforce them.
Also, be prepared to make timely repairs on the property, or you could face lawsuits from your tenants.
Insure your rental property.
Rental property insurance covers many of the same things as homeowners insurance but offers some important additional protection.