There are many reasons that you might decide to rent your home – perhaps you are relocating to a new city for work but plan to return and don’t want to sell, or perhaps you are downsizing to an apartment and want to earn some extra money by renting out your house. Maybe you have purchased property as an investment. Whatever your reasons or circumstances, becoming a landlord is a great way to earn income but there are some things that you need to do in order to protect yourself and your property from potential problems. You might consider hiring a management company to take care of some of these important responsibilities on your behalf, especially if you will not be living in the same city as your home. If not, here are just a few things that you need to do.
Have a solid lease
Perhaps the most important thing to have in place when you are renting your home is a carefully constructed lease. There are, depending on where you live, certain laws that protect both tenants and landlords, and your lease cannot contradict or over-ride those laws. However, there are many things that your lease should spell out to establish clear expectations – and responsibilities – for both you as the landlord and for your tenants. Be sure to address issues like penalties for late payment of rent, acceptable methods for payment, “rules of the house” regarding things like smoking, noise, use of any common spaces shared with neighbors, condominium or home association rules. Don’t forget to clarify things like who will maintain gardens or lawns, shovel snow, make arrangements for small repairs, and responsibility for damage caused by pets. You should also be clear about the terms for returning damage deposits.
Have appropriate insurance
In most cases, you will need to purchase insurance specifically for rental properties – this will cover a whole range of things like damage to your home, damage caused by your tenants, any legal costs that may be associated with these damages. Importantly, rental insurance will also cover personal liability if your tenant is injured or injures someone else and legal actions result. Most policies will also provide coverage if you lose rental income as a result of damages. Your insurance will not cover the tenant’s possessions, so make to explain that your tenant should purchase renters insurance as well.
Carefully screen your tenants
Many problems can be avoided if you take the time to carefully screen your tenants – because evictions can sometimes be quite difficult and costly even with a carefully constructed lease, due diligence is very important before you allow anyone to move into your home. Begin by having a comprehensive application form for prospective tenants, and a signed authorization from them to allow to you conduct a criminal background check and a check of their credit reports. Ask for references from previous landlords – and check them! Past behavior is a good indicator of future behavior and you would be remiss if you did not make sure to have all of the information at hand before agreeing to accept a tenant.
Renting out your home is a great way to generate income, but if things go wrong it can be very expensive to correct them. Thankfully, there are steps that you can take to protect yourself and your property in such cases – be sure to do your homework to understand the process.