There are several ways to generate an alternative income. But small ideas like selling your unwanted clothing or old furniture can only go so far if you seriously hope to boost your family income.
When you’re in the business of making real money, you have to think bigger. A lot of people turn to the idea of renting out their current home as either a vacation or full-time rental property.
If you’re in a financial position that would enable you to carry two mortgages, there may be a great opportunity to rent out your house, help pay down the initial mortgage, and eventually bring in passive income from renting it.
If you’re interested in realizing passive income, keep reading to learn a few tips on how to get started.
1. Determine the Type of Rental Property
The main caveat about renting your house is that you need to have either an additional dwelling unit for you to inhabit on the property, or a primary residence that’s somewhere else. This means you’ll have to think strategically about what your goals are.
There are two main ways to rent out your house: vacation or full-time rental. A vacation home such as an Airbnb means less responsibility because you won’t be legally regarded as a landlord. However, it can become a full-time job to manage and market your property throughout the year.
A full-time rental gives you a little more stability because you know you’ve committed a tenant to a lease. Each month you may count on having a precise amount that comes in whenever it’s time to pay rent.
2. Know What It Means to Become a Landlord
There are more responsibilities when you become a landlord than you might initially assume. It doesn’t just involve collecting rent.
You have to respond to regular maintenance requests, and handle legally binding lease agreements, tenant screenings, and possibly even an eviction or two. Thankfully, there are businesses out there that can help.
Say you own a house in San Antonio, Texas and you want to rent it out full time. A property management company in San Antonio can handle all the landlord’s responsibilities.
You only have to worry about gathering passive income. The firm is an extra expense, but it’s well worth it, especially if it’s your first time renting out a house.
3. Learn About Rental Marketing
Regardless of the type of rental you choose, you’re going to have to learn a thing or two about marketing. This will help you to avoid prolonged vacancies, which can be crucial if you’re paying two mortgages at once.
Creating a quality listing for your rental unit is the first step. It will include such items as:
- Professional high-quality photos of the property
- An enticing description that uses colorful descriptives such as “state-of-the-art, granite, hardwood floors, vaulted ceilings, and luxury amenities”
- Setting expectations on the part of the tenant up front in your property description
- Setting a realistic price based on the current rental market in your area
Once your listing is ready to go, you’ll want to make sure it’s uploaded on all the major websites. A property management company can usually help with this facet, because they’ll have access to a larger network of listing sites.
4. Understand the Financials of a Rental Unit
At first glance, the financials on a rental unit might seem pretty straightforward. But when you get to tax season, you may find yourself in a pickle.
It’s always recommended that before you take the leap into converting your house into a rental property, you should speak with both an accountant and real estate attorney. You’ll need to understand your local tax and zoning laws.
For example, you could be eligible for certain tax deductions based on your rental unit. But it’s vital to know how much, because there’s a limit to what and how much you may deduct.
5. Do the Extra Work to Find the Best Tenants
One of the biggest issues many first-time landlords experience is unsuitable tenants. The property owner focuses so much on getting someone into the lease as soon as possible to avoid a vacancy, that he or she skimps on the due diligence.
Tenant screenings are incredibly important. You’re depending on the renter not only to pay their amount owed on time but to be respectful of the property and the adjacent residents.
Make sure you always meet a potential tenant in person before signing any agreements. You should also ask for references from previous landlords as well as perform the necessary income, employment, and background checks.
The more work you cover from the beginning, the less you’re likely to have an issue down the road that may lead to evictions or noise complaints from the neighbors.
Collecting passive income by renting out your house is a great way to achieve financial freedom. But it’s essential to do your homework before you jump in.
Most important, always speak with professionals such as a property management company, real estate attorney, and accountant. This will ensure you understand your responsibilities and that you stay compliant with the law.