Guide to Renting Your Home

Rental property can be lucrative, although proper steps need to be taken to ensure landlord success.

• Physically Prepare the Rental. This involves inspecting and cleaning the home. Make sure everything is working and in good condition. Fix any problems (a leaky facet, broken smoke detector, or burnt out light bulb) and clean everything--from the floors and windows to the inside of the oven. Care for the lawn and seal cracks in the driveway. If furnishing the home, check to see if the home is properly equipped (for example, see if the kitchen has enough plates, bowls, and silverware), and buy any items that the home lacks.  Remove your most valuable items. If you are storing anything in the home, put it behind locked doors. You can also use zip ties to secure cabinets. Finally, if you have bold, colorful walls, repaint them to a more neutral color such as beige.

• Decide How to Manage the Rental. Are you going to manage the property yourself, or hire a company to manage it for you? If you manage it yourself, secure a legal lease document for you and your tenant(s). See RocketLawyer's sample lease agreement. Hiring a company reduces your profit because property management companies typically take 4-12% of the monthly rent for their services. On the bright side, the services such companies provide are extensive. They will screen tenant applications, preform repairs, collect rent, deal with IRS payments, and handle evictions as needed. Find a property manager in your area here. 

• Notify Your Mortgage and Insurance Companies. Let these companies know that you won't be living in this home. Note that you may be required to meet certain mortgage-as-landlord requirements. Mortgage companies have certain rights to your home to protect its security interests. Switching your homeowner's insurance policy to a landlord policy compensates for losses resulting from tenant negligence, natural disasters, and fire or water damage. 

• Notify the Post Office. Let them know to divert mail from current or previous owners.

• Set Your Price and Terms. This depends on your expenses, demand, the market price for comparable rentals, and the details of your property (does it come furnished?). You also must set your policies, addressing pets, smoking, security deposits, included expenses, rent due date, cleaning fees if applicable, and so forth. These should be spelled out in the lease agreement.

• Review Tenant Applications. RentalsOnline.com states that March-August are the best times to find a tenant. Ask potential renters of their employment and rental histories, in addition to recommendations from previous landlords. You can even ask tenants their Social Security number and written authorization to check their credit reports and criminal history.  

All in all, renting your home is something that takes consideration and time. Completing all the steps before listing your rental home will help ensure both tenant and landlord satisfaction. 

What to Look for in Investment Property

Buying a piece of real estate as an investment property can be tricky. It can also be quite lucrative. Today more than ever, the rental market is booming. Increasing student debts have pushed back the median age of the first-time homebuyer. With inventory consistently low, many people who would have bought a home in other market conditions are deciding to rent, instead. If you are interested in buying a home to rent out, consider these factors:

Numbers. The most important aspect of investment property is profitability. It’s important to gauge profitability more on current performance as opposed to future predictions. In other words, if a property generates little income now but the area is “expected to appreciate,” it may not be your safest option. The ideal income property will offer appreciation value and cash flow. It’s better to use growth potential as a differentiating factor between areas that offer similar cash flow rather than a leading indicator. Does the neighborhood plan to build parks, malls, gyms, etc? This is not only important because it is a sign of growth, it also signifies growing employment opportunities (and thus a larger pool of tenants!).

Be weary of places with prices that are too good to be true—cheap properties are often accompanied by a high number of risks and problems. Look for something that is listed for a price similar to market value or above. You’ll also want to consider property taxes and rate of return, or “cap rate.” Research market conditions before you determine what a “good” cap rate is; this number continuously fluctuates.

Source. Be cautious of homes that have sat on the market for a long period of time. This is rather unique in today’s market, and there may be a good reason no one has yet bought that property. Likewise, a reduction in price may be a red flag.

Location. Considering price-to-rent ratios, you will want to avoid buying a rental property in a city’s nicest location. Aim more for average-priced neighborhoods, but remember that your tenants will reflect the quality of the neighborhood in which you buy. Homes in reputable school districts with low crime rates tend to hold value over time. Also consider vacancy rates and average income.

Condition. Ali Boone, an author of Bigger Pockets, advises that investors buy turnkey properties. At the very least, hire a home inspector to examine the actual condition of any property before you buy it.