- Assemble Your Team
- Understand Federal Housing Laws
- Research Local Rental Laws
- Set the Rental Price For Your House
- Market Your Property
- Find the Perfect Tenant
- Draft An Airtight Lease
- Automate Everything
- Purchase Insurance
1. Assemble Your Team
The first step to renting out your house is to assemble your team. While you can do everything yourself, getting professional help is usually best. That means thinking about hiring a real estate agent, a professional photographer, an attorney, and a property manager.
A real estate agent or property manager can market and rent the home for you while handling photos and drafting a lease. However, if you prefer to save on commission fees and handle marketing yourself, investing in professional photos and having a lease drafted by a real estate attorney is best.
2. Understand Federal Housing Laws
Before you rent your house out, it's also essential to understand the federal laws you'll have to abide by as a landlord. All landlords nationwide must adhere to certain federal laws governing the rental industry. A universal example of this is The Fair Housing Act. Established in 1968, this act protects tenants from landlord discrimination based on race, color, religion, family status, sex, or disability. It makes it illegal for a landlord to deny a potential tenant based on any of these factors.
The Fair Credit Reporting Act is another law all landlords should be familiar with. This act dictates how a landlord may screen a tenant based on their credit history; more specifically, it states that a landlord may only run a credit report if an applicant has given their express permission. Additionally, landlords must also provide the tenant with information on the credit agency used and whether the credit report information was the determining factor in being denied or accepted.
Violations of these laws can be costly and usually result in thousands of dollars in fines. Because of this, it is advisable to research them thoroughly and perhaps even discuss them with your real estate attorney.
3. Research Local Rental Laws
In addition to federal laws, each state and many cities will also have their own rules regarding how rental properties should be managed. These items will be different depending on what type of rental property you own. For example, the local laws governing the use of a small multi-family unit may significantly differ from those governing a single-family residence. Therefore, it’s important to check with your local housing authority and attorney to avoid potential fines for unintentionally breaking the rules.
4. Set the Rental Price For Your House
The next step in renting your house is setting the asking price for the home. While you can ask for whatever amount you want, it’s best to base the price on market conditions. To do this, you’ll look at comparable properties on the market or perform a comparative market analysis. Setting the right price is important as it ensures the house will rent quickly and won’t sit on the market for months.
5. Market Your Property
Once you have set a price for your home, you’ll need to market it. There are many ways to go about this, including Zillow listings, social media campaigns, flyers, bandit signs, newspaper ads, and even simple word-of-mouth. Of course, if any of those fail, you can also pay your real estate agent to list the property on the MLS. Or, if you’re more interested in a short-term rental situation, you can list your property on sites like Airbnb and VRBO.
6. Find the Perfect Tenant
There are two general industry standards when it comes to accepting a tenant. The first is that your prospective tenant’s income must be at least three times their monthly rent. The second is that their credit score must be above 600. Other items to consider are a tenant’s previous payment history, job security, pets, and any record of prior evictions or criminal activity. You can also ask for character references, such as previous landlords and employers, to verify all given information.
Because whoever you choose will be living in your home, it’s also important to consider other factors that might be important to you. Cleanliness, for example, can be a determining factor in your acceptance or dismissal of a potential tenant.
7. Draft an Airtight Lease
Once signed by all parties, leases are binding legal contracts. You can find generic, state-specific leases on Google by searching your state’s name with “residential lease” typed beside it. However, before blindly selecting a random contract, it’s important to set your own personal standards. For example, how many days late will you accept rent? Will there be a fee? What are the grounds for eviction? What house rules would you like to implement alongside the lease, if any? Are there assigned parking spaces? Who is responsible for paying utilities?
To ensure that your lease is both compliant with local, state, and federal laws and fitting for your personal standards, it’s always a great idea to discuss it with your real estate attorney.
8. Automate Everything
Once the lease is signed and ready to go, it’s time to automate. From collecting monthly rental payments to wiring a home security system, anything that can be automated should be. Automation can also include maintenance requests, lawn care, pest control, and lease renewals. While these are all things you could easily take care of yourself, automating every part of your rental property will save you time, reduce frustration, and eventually allow you to scale your rental business – if that’s what you choose to do, of course.
9. Purchase Insurance
You'll also want to have a good insurance policy when you rent your house out. Homeowners insurance, while important, is not always enough coverage once you begin renting out your property full-time. On the other hand, Landlord insurance protects homeowners who choose to allow tenants into their homes. Typically, one of these insurance policies will cover property damage, liability, and loss of income under certain catastrophic events. In some cases, you can also add water/flood, tornado, and personal property insurance to these policies to cover any extraneous events.
This coverage can add to your monthly expenses, and policies are often tricky to understand. However, many landlords find that the peace of knowing their homes are properly protected makes it all worth it.
Renting out a house for the first time is pretty hard, but it can be very profitable and is well worth it. It’s an incredible way to start making passive income, giving you more financial independence. All you need to do is put in the initial effort to learn how to rent out your house and find a good tenant, and you’ll be set.