Renting out your house isn’t what it used to be. In the past, you’d have to put ads in the newspaper or work with local real estate agents to find suitable tenants.
However, with online rental sites like Airbnb and Vrbo, it’s now easier than ever to make some extra money by renting your home to short-term tenants. But the real question is, will that make you the most money in the long-term?
Whether you’re a seasoned property owner or a first-time landlord, our five essential tips on successfully renting out your house will equip you with the knowledge and strategies needed to attract the right tenants and make passive income this year.
Pros of Renting Out Your House
Renting out your house can offer several advantages to property owners, making it an attractive option for many. Here are some of the key advantages of renting out your house:
Renting out your property means a reliable source of passive income. This allows you to benefit from your real estate investment without any active involvement while covering some or all of your mortgage payments and other property-related expenses.
This passive income may allow you to acquire more rentals and build up a significant portfolio of rental properties and passive income streams. It can also help supplement your primary source of income and provide you with financial stability and security.
Real estate is one of the oldest and most stable investments in human history. Over long-term economic cycles, real estate tends to hold its value better than any other investment.
Additionally, real estate also enjoys long-term capital appreciation. In other words, real estate investments may increase in value over time due to factors like location, demand, and improvements made to the property.
This capital appreciation can significantly boost your overall wealth, especially if you plan to sell the property in the future when its value has risen.
Renting out your house opens up several tax advantages that can reduce your taxable income. The interest on your mortgage payments, property taxes, insurance premiums, and other property-related expenses can be used as a tax deduction and reduce your overall tax liability.
Keep in mind it’s essential to consult with a tax professional to fully understand the tax benefits specific to your situation.
Owning a rental property adds diversification to your investment portfolio. Diversification is a risk management strategy that involves spreading your investments to reduce overall exposure to a single asset class.
By having real estate as part of your portfolio, you can reduce the overall risk and potential impact of fluctuations in other investments like stocks or bonds.
Drawbacks of Renting Out Your House
Renting out your house can be a smart decision, but it also comes with drawbacks and challenges. Here are three potential drawbacks of renting out your house:
When you rent out your house, you’re depending on your guests to be responsible and clean up their messes.
Unfortunately, not all tenants treat the property with the same level of care as a homeowner would. There might be accidental damages caused by tenants or their guests, including broken appliances or stained carpets.
In some cases, tenants may neglect regular maintenance tasks, leading to issues like leaky roofs or plumbing problems that can escalate if left unaddressed. Be prepared to deal with potential property damage when renting out your home.
During periods of vacancy, you won’t receive rental income while still having to cover the property’s ongoing expenses.
Additionally, rental properties located near sports or concert venues may experience a heavy decline in bookings in off-peak seasons.
This can make it difficult to predict your income and may end up costing you money if the vacancy period extends for longer than expected.
Legal and Financial Risks
As a landlord, you’re subject to a range of legal responsibilities, including complying with fair housing laws, maintaining the property in safe conditions, and respecting tenants’ privacy rights.
Failure to comply with these regulations can lead to legal disputes and fines for property owners.
Rental properties also come with financial risks. If a tenant stops paying rent or causes significant damage, you might have to pursue legal action to recover losses.
In some cases, the cost of pursuing legal action could exceed the amount owed and leave you with a financial burden.
Tips on Successfully Renting Out Your House
Now that you understand the risks and rewards of renting out your house, it’s time to prepare for your first rental booking. Here are our top tips for successfully renting out your house this year.
Get Familiar With Landlord Laws
Getting familiar with landlord laws involves thorough research and understanding of the legal framework governing landlord-tenant relationships.
Begin your research by searching for landlord laws and regulations online. Many government websites provide comprehensive information on landlord-tenant laws specific to your country and local jurisdiction.
Resources from housing authorities, real estate departments, or legal aid organizations will provide you with the most up-to-date information you need when renting out your property.
Determine How You Will Rent
Determining the ways to rent your property involves considering various factors including your goals, the property type, local rental demand, and personal preferences.
However, most landlords must choose between short-term rentals through online platforms and long-term rentals to tenants.
We recommend researching short-term rental sites to compare their features and policies to find the best fit for your property. Be sure to determine the local rental demand by seeing how many active listings are in your area and the number of active hosts with positive reviews.
On the other hand, renting to long-term tenants could be a viable option as well. You’ll have a long-term agreement in place that guarantees regular monthly payments (assuming the tenant doesn’t default) and you won’t have to worry about vacancies or seasonal fluctuations.
However, long-term rentals may not be as profitable as a short-term rental that is consistently booked. It’s important to weigh the pros and cons to decide which strategy is right for you.
Find Out Your Earning Potential
It can be difficult to predict the earning potential for your rental property, especially with short-term rentals. There’s no guarantee that your property will be booked each week and your income could fluctuate significantly.
That’s why we recommend looking at other hosts in your area and see what they’re charging per night. You can look at the calendar to see how often it’s booked and base your projections on these numbers.
Long-term rentals have a more stable structure. If you plan to rent your property for $2,000 per month and sign a tenant to a one-year agreement, your rental income would be $24,000 per year.
However, be sure to factor in other expenses like taxes, insurance, and maintenance to determine your break even point and profit margin.
Market Your Rental Effectively
Marketing your rental property effectively is essential to attract potential tenants and find the right match for your property.
Start with taking professional photos of your home in good condition and natural lighting. These photos are the only information potential renters will see when deciding whether to book your property or someone else’s.
Property owners using rental sites can benefit by tapping into the platform’s user base. These sites also promote listings organically, which can benefit new hosts who don’t have the money to spend on advertising.
Landlords looking to rent their homes to long-term tenants must market their property differently than short-term rentals.
Some of the best places to advertise a long-term rental are on rental platforms like Zillow, Trulia, or Craigslist. Additionally, working with a real estate agent or property management company may also be useful for finding high-quality tenants.
Get Your Home Rental Ready
Whether you’re renting to long-term or short-term tenants, you’ll need to take time to make sure the property is rental ready.
First, property owners should make all necessary repairs and take care of common maintenance issues. Inspect the property and look for issues that need fixing, such as leaky faucets, electrical issues, and any surface level damage to the property.
Next, it’s time to do a thorough cleaning of the property to clean up any dust or dirt that’s built up. Pay close attention to the floors, windows, carpets, and bathrooms when cleaning your home.
Safety is another major concern for potential guests. Ensure all locks are working and consider installing a video-camera doorbell in case of any disturbances. Also verify that smoke detectors are working and fire extinguishers are easily accessible in case of emergency.
Finally, it’s time to stock the home with essentials. For short-term guests, make sure there is plenty of toilet paper and towels so the guests don’t run out during their stay. Also make sure your cookware is clean so guests can cook their own meals if they choose.
The Bottom Line
Whether you’re hosting short-term or long-term tenants, renting out your house can provide you with passive income and financial stability.
However, make sure you understand the risks of rental properties, as failure to comply with landlord laws and regulations could lead to messy disputes.
By using these five tips, you’ll be in the best position possible to start a profitable rental business this year.
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