Guest post by Ryan Coon, Rentalutions
Redfin recently released its Real-Time Market Sentiment report, which found that 39 percent of homebuyers plan to rent out their last home rather than sell it. The report notes that people are choosing to become landlords for reasons both financial and practical. If you are renting your home, or are considering doing so, here are some tips and suggestions for making it a positive experience.
First, recognize that becoming a landlord is like starting a small business. You should set goals and realize that you are taking on financial and legal responsibility. You also need to spend time thinking about the relationship that you want to have with your customer (your tenant). To help you think through everything, here are the five components of a typical rental process:
- Finding Tenants: You can find tenants by advertising your vacancy online. Potential tenants will contact you to arrange a time to see the property. The other alternative for finding tenants is to hire a real estate broker who will advertise the property for you.
- Screening Tenants: Perhaps one of the most important things you’ll do as a landlord is screen your tenants. As a landlord, you want to do everything you can to ensure rent is paid on time every month and that your tenant will respect your property. The best way to do this is by seeking references from the tenant’s prior landlords, checking employment history and running a credit check and criminal background check.
- Preparing and Signing the Lease: Prior to having a tenant move into your home, you want a signed lease agreement that complies with local ordinances. Check with a local apartment association to see if there is a standard lease document for your city, or if a state-specific agreement is sufficient.
- Collecting Rent: You’ll want to collect rent on time every month and enforce late fees to discourage late payments. Many landlords choose to collect rent online to avoid the hassle of collecting paper checks. The rent you receive must be reported on your taxes, so keep detailed records of all payments from tenants.
- Handling Maintenance Requests: While renting out your home, you will likely receive maintenance requests from your tenants. Responsible landlords are quick to respond to these issues and openly communicate with tenants while repairs are being made. Just as you keep track of the rental income, keep track of expenses related to maintaining your property.
If you decide to hire a professional to help you manage your rental, you’ll choose between a full-service property management company and a real estate broker. A full-service management company will handle every step of the process and will consult you for major decisions. You will receive a report at the end of the month that summarizes the activity for that period. The typical cost of a property management company is one month’s rent for finding the tenant plus 10 percent of the gross rent every month. A real estate broker is an option if you want someone else to find and screen tenants for you. A real estate broker typically charges one month’s rent for this service. If you choose to hire a broker or management company, ask friends and family members for a recommendation.
If you choose to manage your rental home yourself, there are several resources and tools that can help:
- Your local apartment association: The National Apartment Association has affiliate organizations in all major metro areas across the country. Click here to find the affiliate organization nearest you.
- Landlord blogs and forums: There are several online communities for individuals who own rental properties. One of the largest is BiggerPockets. On this site, you can search for information and post questions for other community members.
- Online management tools: There are dozens of websites that provide tools aimed at helping you with one or more pieces of the rental cycle. These tools are the same, or similar to, tools used by professional management companies.
Whether you decide to rent your home yourself or hire a professional to help, be sure you’re following local rental ordinances. Most major cities have a strict set of rules to protect tenants and landlords. These ordinances define rights and responsibilities for landlords and strict penalties when rules are broken (even unintentionally). Be sure to protect yourself by understanding and following the rules.
About Ryan Coon
Ryan Coon is a co-founder of Rentalutions, a leading web-based landlord software provider. Rentalutions’ tools help you through every step of the rental process: finding tenants, screening tenants, creating leases and collecting rent. Landlords from across the United States use the software and several Redfin clients are among its happiest users. You can follow Ryan on Twitter at @ryanmcoon or Rentalutions at @Rentalutions.
Note: This is a guest post; the views and opinions expressed are those of the author and do not necessarily reflect the opinion or position of Redfin.