Earning income from rent seems like an easy way to get some cash. In an ideal situation, it's awesome. But if things go wrong you could be in the middle of a nightmare.
Whether you decide to rent our your entire home or sublease a room in your house, there some basic principles to consider.
1. Finding A Tenant
No matter how desperate you are to get someone to fill your vacant space, be patient. Majority of the problems new landlords face could have been prevented with some basic screening. You can find some pretty good stuff online that offers to do that for you. Include the fee for the background check as part of the rental application. If a prospective tenant balks at the idea of the application fee or having a security check, that should be a sign of trouble to come.
If you don't want to go through the trouble of screening applicants, or if you just can't handle rejecting people, consider outsourcing your tenant placement. Management companies will often find tenants for you (for a fee). Many times they will include a warantee for some amount of time.
Have a robust application form. Try to get a brief history of where they lived. Have they been bouncing around from place to place? If they have rented in the past, make a landlord reference mandatory. Then, be sure to follow up on the call. In fact, for any reference you can get (employment/sources of income, character), do your do diligence. It only makes sense that you do everything you can ahead of time to make sure your tenant will be able to pay their rent on time, and not destroy your property.
Now, some people will have had hard luck. They will come to you with sob stories about losing their job and going through foreclosure, etc. You may need to go with your gut here. It's very possible that you can give someone the chance they need to get back on their feet. However, without validating their history, you could be walking into a trap. It's also possible that someone who looks perfect on paper turns out to be a bum. In these cases there is no substitute for an in person meeting.
2. The Rental Agreement
In the world we live in, you are bound by everything you put into writing. If it isn't in the contract, you won't have anything to back your claims if something goes wrong. Online websites will have options for rental contracts. I think these are a good place to start. You should also spend a good amount of time understanding your local laws.
Core Items to Include In a Rental Contract
(this list is just a subset of potential items, it is not comprehensive)
- Due Date
- Payment Amount
- Payment Address
- Landlord Name
- Landlord Address
- Address of Rental Property
- Terms of Lease
- due dates
- rental amount
- duration of tenancy
- Terms for late Payments
- Definition of a late payment
- penalty for Late Payment
- penalty for non-payment
- Damage Deposit Amount
- Condition of Property Report (You should do a walk-through with the tenant to go over this inventory. Be extremely thorough)
- Eviction Policies
- Rules of the Property (noise, basic maintenance, responsibility of tenant to notify landlord of any issues)
- Waiver of Liability/Indemnification clauses
- Signatures with Dates - Consider Notarizing this
Be sure to go over each item with your tenant to make sure you both understand it.
3. Dealing With Issues
Even with all the prep work, things can still happen. It is imperative that you act immediately if anything starts to look fishy. Notify your tenant the day their payment was not received. Notify them the day before you go to file eviction paperwork. Use every mode of communication available: mail, email, and phone messages. If you need to, bring in a mediator or other neutral third party.
IF the issues are with the property itself, again, be prompt to remedy things. Do your homework to find contractors or a handyman you can trust if you don't want to repair things yourself. Another great way to avoid headaches is to visit the property every other month to make sure everything is operating as expected. If you can't do this, consider a property manager.
Be creative. Sometimes flexibility and adaptability can lead to a solution both landlord and tenant can agree on. Change the payment structure, or adding late amounts to future months rents can be ways to manage payment difficulties. Again, just make sure any alterations are documented and signed.
Again, I can't stress enough, know the local laws in your state/city/county. There may be different requirements from every level/jurisdiction that covers your area.
4. The money
Figuring out what to charge for rent can take a bit of work. You my have an idea of what you want to charge, but that may not be what the market rate is. Look online, ask other landlords, and you will get an idea of what to charge.
Keep all your receipts. In order to complete your taxes correctly you will need to be able to verify all your expenses.
Once you start getting rental payments, if you have profits, start saving them. It's generally a good idea to have 6 to 12 months of rent saved up in case your renter leaves and the rental market takes a dive.
Be sure to specify in the rental contract what is included in the rental payment. What utilities will you pay for and which one will be the responsibility of the renter?
Advise your renter to carry renter's insurance to protect their property in case of some sort of calamity. If you own a single family home, you will still need to carry some sort of homeowner's insurance. Many companies offer landlord insurance. You may also want to consider umbrella insurance or additional liability coverage.
In conclusion, renting out a home can be a great way to supplement your income. Just give yourself as much peace of mind as possible by doing a lot of homework ahead of time.