Renting out your home can be a fantastic way to increase your cash flow. Whether you’re renting to a long-term tenant or occasionally renting a room to travelers through a platform like Airbnb, you’ll be collecting rent—sometimes hundreds or even thousands of dollars a month—just for making some of your home space available.
However, renting out your house isn’t a get-rich-quick scheme. It can present a significant number of unique challenges, all of which threaten to jeopardize your profitability and/or increase the stress you face in your life.
Marketing, qualifying tenants, collecting income, and planning for taxes are complexities that few homeowners consider in detail when speculating about the possibilities—but you’ll need to have a plan for how to deal with them if you want to succeed.
Tips for First-Time Home Renters
If you’re new to the world of renting out a home, keep these important tips in mind:
1 – Understand how to deduct expenses. As a homeowner renting part of your property to tenants and guests, you’ll be eligible for several tax deductions, many of which are highly advantageous. For example, most expenses that are necessary and ordinary, such as insurance, maintenance, and repairs, are tax deductible. Keep a record of everything you’re buying for the property, and all the monthly or annual costs you pay to keep the property operational. You’ll be able to deduct these expenses come tax season.
2 – Estimate your expenses conservatively. Many new landlords are inclined to estimate expenses and rental income in a way that seems favorable. They look at rental prices in the area, their current costs, and conclude that they’ll be making money hand over fist. In reality, rental property expenses can be complex and difficult to anticipate. Depending on the condition of the property, you could pay little to nothing in maintenance costs, or pay several thousand dollars a year. Always estimate your expenses conservatively, so you can remain operational even in the worst-case scenario.
3 – Screen your tenants carefully. Not all tenants are going to pay you consistently or reliably, and not all of them will follow your rules for the property. Screen your tenants carefully by checking their financial history and references, and make sure you know their current income and job status. Be careful not to discriminate against any prospective tenants for factors like race, gender, or family status, but do perform a financial assessment.
4 – Be careful when using online platforms. Online platforms can be a convenient and simple way to list your property, find new tenants, and even handle tasks like collecting rental income. However, there are also some downsides to using these online platforms. For example, you’ll be subject to any rules and regulations issued on a platform-specific level, and you may end up paying a higher fee for the privilege of listing. These aren’t deal breakers, but you should understand them before moving forward.
5 – Be prepared for some life disruptions. Renting out a room or a section of your house will ultimately result in some life disruptions. It might be excessive noise on an occasional basis, or a request for an urgent repair while you’re occupied with something important on a personal level. Have a plan in place for how to handle emergencies, as well as minor annoyances.
6 – Have a reliable way to collect rent. Rental income is how you’re going to sustain this endeavor, and your primary goal in pursuing it in the first place. Make sure you have a solid, reliable system for collecting it. Automate it if you can, and make sure your tenant understands the importance of consistent, on-time payments.
7 – Talk to a lawyer. The laws for renting a property will vary based on your location and how you’re renting the space. They can also get complicated, depending on your specific circumstances. If you don’t follow these laws precisely, you could be held liable for damages, or your tenant could make your life very difficult. Rather than trying to study and learn all these laws on your own, work proactively with a lawyer before you bring on your first tenant; they’ll be able to help you understand complex topics like lease agreements, discrimination, and tenant rights.
Before You Get Started
If you’re committed to the idea of renting a room or a different section of your house, consider meeting up with some landlords in your area who are doing something similar. The best way to learn is through experience, but the second-best way to learn is through someone else’s experience.
Learn about the challenges that other people have faced in a starting position like yours, and come up with a plan for how to address them. The more proactively prepared you are, the better.
Photo is pixabay creative commons
Guest Author Bio
Jamie is a freelance writer who covers trends in business, technology, and health. She loves to go skiing, camping, and rock climbing with her family.