How to Rent Out Your Home, According to Real Estate Agents
There are plenty of reasons why someone might consider renting out their house—it's a great way to make extra income, build assets, and gives property owners other options besides selling. Ellen Sykes, a broker with Coldwell Banker Warburg, notes that people often rent out their homes if they are making a temporary move or if they feel the selling market isn't in their favor. Instead of putting their home up for sale, "they'll wait for a more favorable time and make a little money to offset their expenses," Sykes says. No matter the reason, there are a few key steps to take to ensure the process is as smooth as possible—which is why we turned to the experts. Ahead, several brokers helped us curate a checklist to aid homeowners on their renting journey.
The first thing to consider is why you want to rent out your home; doing so will help you better understand if it's the best option for you, says Jane Dorian, a broker with Avenue 8. "Some might want to try out a new city or state before they make the commitment to move. Renting for a year or two is a great way to hedge the bet," she explains, adding that other reasons include financial woes (a homeowner might need the extra income, but isn't yet prepared to sell their home). "For others, the tax implications of selling a property does not make sense." Putting thought into your specific situation, checking your local and state regulations, and heeding the below advice will illuminate the best way forward.
Decide on a short- or long-term rental plan.
After you assess your current circumstances, you'll better understand the type of renting method that best suits you—it might be short- or long-term. "A short-term rental is typically anything from one night to less than a year," explains Kimberly Jay, a broker with Compass. "These are normally furnished homes." There are a few benefits to going this route: For example, you can use the home when it's not being rented. "Some people choose this option when they are going away on vacation to generate additional income. Others use services like Airbnb to continuously rent out on a short term basis," Jay says. There are downsides to this situation, however. As these types of rentals are temporary, there is uncertainty of future income. Additionally, because the occupants are constantly changing, the house suffers more wear and tear, racking up additional costs for cleaning services, repairs, and even painting. "Short-term guests are unlikely to treat your home the same way a long-term tenant would," Jay adds. Long-term rentals are for a year or more and the most common option for people looking to rent out their property, especially if they're looking to rake in disposable income. These types of rentals provide a steady influx of revenue and have less of a turnover rate, meaning there are fewer expenses. "The tenant is more likely to treat the home as if it were their own," Jay explains.
Make a budget and set your rent.
It's important to establish a budget before setting the rent. Consider the extra costs associated with being a landlord, such as routine maintenance, inspections, renovations, and mortgage payments. "Will you permit pets? Will you be providing a housekeeper once a week? Gardener? Pest control? All of these services should be considered when establishing what you charge for rent," Dorian says. One way landlords choose to minimize repair fees is to charge a security deposit, which helps offset any damage incurred during the tenants' stay. "Your budget will help determine your security deposit (first and last month's rent) and what you'll need to charge for rent," explains Latham Jenkins, a luxury and lifestyle associate broker at Live Water Jackson Hole. He encourages renters to also consider the homeowners association fees, including costs to remove snow and maintain the pool and lawn. "Work with an attorney to assure you have a valid lease that complies with local and state laws," he notes.
Once you've created a solid financial plan that takes into account the additional costs associated with renting out your home, you can set your price. For short term rentals, Jenkins says to review what other like-type properties are asking in your neighborhood by looking on sites like Airbnb, VRBO, and HomeAway. "Expect that renters might try and negotiate with you and know your bottom line from your budget," he says. Alternatively, people planning to rent their home long term should check the classifieds and other property management sites that list rentals. "Often you'll see it can be driven by room count, location, and how much rental inventory is available. You can also use online applications such as Rentometer to help guide your rental rates," Jenkins explains.
Talk to your insurance agent.
Before welcoming tenants into your home, reach out to your insurance agent to let them know the house won't be owner-occupied. "You need to discuss the potential liabilities that come from renting your property, what to do about tenant damage, vandalism, burglaries and if you can buy an additional home warranty. That would cover most items in the house like dishwashers, stoves, washers, dryers, garage door openers, and HVAC units," Jenkins explains. Additionally, if your tenants are staying for a year or more, Dorian says to ask them to take out renter's insurance on their possessions. When you contact your insurance agent they will be able to explain in detail what they require from you and what they also recommend of your tenant.
Consider working with a real estate agent.
If your budget can support their involvement, realtors can be a valuable asset to the process of renting out your home as they have a good feel for market pricing and demand, Jenkins says. When you are ready to search for tenants, Sykes recommends getting a real estate agent as a first step. "Not only will the agent take care of all the details like credit checks and references, but they will also show the property and qualify the renter," she explains. Additionally, Sykes says agents can deal with prospective tenants without emotions, noting that renters have a hard time being completely objective.
Market your home.
How you market your property depends on the type of rental you have and the market. "If you are looking for daily to weekly rentals, you can use Airbnb or VRBO," Jay says. "Remember, this can become a full-time job with tasks like taking professional pictures, writing a description, managing inquiries, and showing the property." For long-term rentals, Jay recommends hiring a realtor who will handle the entire marketing process for you. She also says to also utilize online marketing outlets like Facebook and local classifieds.
Prepare your house for move-in.
The steps you take to prepare your home for tenants hinges upon whether you're delivering the property furnished or unfurnished. If you're leaving your belongings inside the home—a common option for short-term rentals—the first thing to do is declutter, then remove any pieces of monetary and sentimental value. "That would be jewelry, handbags, small electronics, heirloom crystal, china, silver, delicate items, and personal photographs," Dorian says, adding that you should essentially remove anything you'd be devastated to lose. Next, evaluate your furniture: Can it take more wear and tear than normal? "You might want to purchase inexpensive furniture and put your favorite furniture in storage," Dorian advises. If you decide to offer a vacant property, adding a fresh coat of paint and replacing outdated appliances, like the washer and dryer, will command higher rent. No matter the rental type, it's courteous to make sure that all lightbulbs are working and the interior of the property is clean. Additionally, Jenkins says to resolve any deferred maintenance and change out all filters. "Set tenants up for success and save the headaches that come from anything you have neglected to service or maintain," he says.
Find a good tenant.
At the end of the day, this is your home—so you want a quality tenant that will love the space as much as you do. To spot a good applicant, Dorian says to look for someone with excellent credit history. "You want to know who is living in your home and that they can make rent." she says. For long-term tenants, Dorian recommends having the applicant provide a letter of recommendation, which typically comes from a previous landlord. Jenkins says to also verify their rental history and reported income with their employer. "You can use online services such as Tenant Verification or TenaCheck, to screen tenants and check an applicant's credit score," he adds.