Converting your home to a rental property can be a great way to earn some extra income, but there are many factors to consider before bringing in tenants. You will need to modify your mortgage and insurance policy, research rental rates, plan for property management and maybe make some repairs or upgrades to your home.
Mortgage rules, home insurance and other permits
Unless you own your home outright, turning it into a rental property begins with the terms of your current mortgage. You may have to pay a fee, refinance to a different type of loan or meet other criteria before changing your home from a primary residence to a rental property. You will also have to update your home's status with your local municipality, apply for any necessary safety permits and convert your home insurance to a policy designed for a rental property.
When renting your home, you can manage the property yourself or hire a professional. Managing it yourself saves money, but landlord duties can be a stressful and time-consuming commitment. Property management companies typically charge about 10 percent of the rental income. They have the expertise to handle the entire rental process, including any problems with may arise with your tenants.
Ownership costs and potential rental income
Does converting your home to a rental property make financial sense? Research the rent for comparable homes in your area. A Realtor or property management company can also help you determine a fair rental rate. Now add up all of your ownership costs, including your mortgage payment, insurance costs and property management fees. Are your total costs less than your expected rental income? Is the potential income enough to offset future repairs or periods of vacancy between tenants?
Tax implications for a rental property
The tax laws for a rental property are different than those for a primary residence. Talk to a certified public accountant (CPA) or other tax professional to learn about the benefits and drawbacks of renting your home. Be sure to ask about the taxes on rental income, depreciation deductions for rental properties and potential capital gains taxes if you later sell the rental property for a profit.
Updates and upgrades to attract tenants
Once you have decided to rent your home, get it in top shape to attract and keep tenants. Start with repairs required for safety, such as accident hazards like loose handrails or any known wiring issues. Install smoke detectors and add a fire extinguisher to the kitchen. To cut down on the water bill, repair any leaky faucets or toilets. Clean or replace worn carpet and give each room a fresh coat of paint. Consider hiring a professional cleaning service to deep clean your home before bringing in potential tenants.
With some research and careful planning it will be easy to see if converting your home to a rental property is the best decision for your financial situation.
This article is presented by Perkins Motors in Colorado Springs, Colorado