The best kind of income is passive income; the kind where the money just comes in, and you don’t have to do much to work for it.
If you’re thinking about turning your current home into a rental property to pull in some extra cash without having to do much, there are a few things that you might not have considered. Here are some tips for turning your house into a rental that can keep you out of headaches and financial trouble down the line.
If you’re new to the landlord game, you should consider hiring a property management company to handle your property for you.
For a small monthly fee, sometimes a percentage of the price, they will take care of everything. They will screen your tenants, arrange repairs if necessary, and they take on the responsibility of collecting rent and dealing with the tenants. Otherwise, you can expect to struggle a bit as you get the hang of listing your property, screening applicants, and responding to customer calls and complaints once it’s rented.
Consider Maintenance Costs
You may have already thought about updating your property and getting it ready for renters. There will always be some cost to get started, but many people are unaware of how much it costs to keep a rental in good shape. You may have to clean and do repairs between rentals, pay for plumbers and handymen, or replace appliances if something breaks. If you don’t spend a bit to keep your property in good shape, you’ll likely spend more in the long run.
Price for the Market
When you’re pricing your rental, you have to consider the current market and the condition of your home to determine its value. You may find that it’s more expensive to maintain your rental property than you can make off of it. Finding the perfect balance between affordability and your own profit can be tricky, especially if you still have a mortgage on the property.
Insurance
Of course, you have homeowner’s insurance on the property already, but you should also consider an umbrella policy. A major incident like a fire or a flood can leave you liable for the safety of the people in the home that you own, even if you are renting it out. You should also require that renters have proof of a renter’s insurance policy, so that if the hot water heater starts leaking and ruins their furniture, they have coverage and won’t come after you for damages.
Protect Yourself Legally
It’s a good idea to set up a corporation or legal entity to take on the liability of being a landlord. It helps to protect your personal home and finances if something does go wrong. This will keep your personal assets safe from lawsuits or legal expenses if you are taken to court over your property or injuries that occur on your property. If a dog that belongs to your tenant mauls a child in the neighborhood, the owner of the home can be held accountable for medical expenses and punitive damages. Making a corporation the owner of the home can protect you and your family from that liability.
Pay Attention to Taxes
One of the downsides to rental property is that you can no longer claim it as your primary residence. Many times, you can take a tax deduction for your primary residence. But while the property and income taxes may increase, you should look into what you can deduct as business expenses. Repairs, utilities, and the management company fees might be able to be deducted as necessary costs of doing business.
While there is quite a bit of money to be made in the real estate market, there are some things that you need to keep in mind when setting up a rental property to bring in extra cash. These tips can help you stay ahead of any potential pitfalls, so you can make the most of your rental income.
