Find out everything you need to know about renting out your house for the first time, including laws, rules, best practices, and more.
Benefits and Drawbacks of Renting Out Your House
Here are some potential benefits and drawbacks of the rental market:
|An additional source of income
|Difficult tenants or roommates
|Opportunity to pay off the mortgage faster
|Drop in market value
|Ability to gain equity, sell at a higher price, or move back in
|Diversified investment portfolio
15 Steps To Renting Out Your House
Here are the steps to renting out your house:
- Establish Rental Eligibility
- Determine Rental Type
- Understand Profitability
- Consider Hiring Help
- Learn Landlord-Tenant Law
- Get Rental Ready
- Obtain Needed Documents
- Stage Your Space
- Determine How Much To Charge For Rent
- Write an Enticing Rental Listing
- Advertise Your Rental Property
- Complete Tenant Screening
- Sign the Lease and Collect the Security Deposit
- Set Communication Procedures
- Document Everything
1. Establish Rental Eligibility
There are varying circumstances that relate to whether you can rent out your house. Landlords need to determine if their home situation allows for rentals.
Can You Legally Rent Out Your House?
Homeowners can legally rent out their home if they have a mortgage, as long as they have permission from their lender, get the right coverage with their insurance provider, and follow all local and federal renting and zoning laws.
A quick chat with your lender will help you determine if you can legally rent out your home. Most often, you need to live in your primary residence for at least one year before you can rent your space.
This means many homeowners can’t buy a house and rent it out immediately. Only those who pay cash, have an investment property loan, take out a second home loan, or meet one of the exemption rules can rent out a house before having lived there for 12 months.
Check out this chart for loan occupancy requirements before renting your space:
|Occupancy Requirements Before Renting
|No rentals permitted
|Conventional (Fannie Mae or Freddie Mac)
Can You Legally Rent Out a Condo That You Own?
Condo owners typically can rent out their space. Although a condo rental may seem different from a typical single-family home, it doesn’t have too many rules that differ from traditional home renting rules.
The main difference is that condos generally have a COA (Condominium Owners Association) with bylaws and a Declaration of Covenants, Conditions, and Restrictions (CC&Rs). These rules vary between communities but often include specific rules about renting.
Check with your COA to determine if renting is an option for your property. Keep in mind condo rules can change with a majority vote. So if the answer is no now, it may not always be.
2. Determine Rental Type
Depending on your goals and property, you have a few options when it comes to what type of rental you are interested in offering. Options include:
- Long-Term Rentals – typically a 12-month lease which offers the landlord a potential consistent income.
- Short-Term Rentals – occasional tenants usually through a short-term rental site like Airbnb or VRBO. This offers the landlord flexibility and occasional personal use of the property.
Partial Home Rentals
Using either a long or short-term rental model, landlords can also rent out part of their home like a spare bedroom or basement apartment. This allows the landlord to live in the space and generate income.
The rules for renting a room in your house vary based on your location but they also may differ from traditional rental rules. For example, your insurance company may not require you to get a separate landlord policy unless you have more than two tenants.
To legally rent out a basement apartment, there are additional requirements you must adhere to on top of regular landlord rules. This includes meeting all building codes and getting the proper permits. For example, in Chicago, your property must be at least 20 years old to convert your basement.
3. Understand Profitability
The goal of most landlords is to make a profit from their rental. However, due to rental market circumstances or a high mortgage cost, this may not always be possible.
To prepare your house to rent, you need to prepare your pocketbook and decide if renting is the right option for your situation.
Calculate your return on investment (ROI) by looking at the numbers to determine if renting your house is a good idea. Start by determining the expenses of a rental property: Costs will likely include:
- Mortgage payment
- Property taxes
- Landlord insurance
- License, permit, and/or certificate of occupancy
- Fees (HOA or COA, if applicable)
- Marketing and advertising
Once you calculate your monthly expenses, then, take a look at the rental market and what comparable homes are renting for in your area. Check out popular rental websites like Zillow, Redfin, Realtor.com, and even Facebook marketplace.
Determine if the approximate rent price you can charge will cover your expenses.
- Landlord A has an estimated monthly expense of $2,200 a month. He discovered the average rental price for comparable properties is $2,400. He needs to determine if $200 a month is worth his efforts. He may determine that rental prices will increase and is worth the initial low profit.
- Landlord B has an estimated monthly expense of $2,600. The average rental price of comparable properties in her area is $3,200.She also lives next door to a top-rated school. She feels he can rent at a higher-than-average price and wants to rent her property.
- Landlord C has an estimated monthly expense of $900. The average rental price in his area is $1,200. However, he lives in an older home and expects significant maintenance costs over the next five years (roof, HVAC, appliances). He determines selling his house would be more profitable at this time.
4. Consider Hiring Help
As a landlord, help can come in many forms. You have a lot of decisions to make about what tasks you can complete yourself compared to what you need to hire others for.
Keep in mind, as the homeowner, you don’t want to take home maintenance and repair lightly as it can cause higher costs down the road or affect resale value.
You also need to consider how much time you have to dedicate to the tasks required of listing a home and being a landlord.
Real Estate Agent
One of the biggest initial costs of renting your home can be paying a real estate agent. However, real estate agents can help with most tasks needed to find a highly qualified tenant quickly. This may save you money in the long run.
Assess if you feel comfortable renting your house without an agent by asking yourself a few questions including:
- Can you effectively advertise your property?
- Are you confident in accurately pricing your rental?
- Do you know how to screen tenants properly?
- Do you have the time to handle these tasks?
If you answered no to one or more of these questions, you should consider using an agent.
Effective agents can be a total game changer in your renting experience, especially if you are new to the rental market.
A property management company can also handle many of the tasks that a real estate agent would take on.
Another big cost to landlords is hiring a property manager. However, many landlords do not have the time to handle regular communication with tenants or the know-how to handle maintenance issues. Here are a few questions about your property management abilities including:
- When an issue occurs in the middle of the night, are you able to handle it?
- Do you want to be responsible for ensuring rent is paid on time?
- Are you knowledgeable about Landlord-tenant laws in your area?
If you are an inexperienced landlord or don’t have a lot of time to dedicate to being a landlord, you may want to consider hiring a property management company to turn your home into a successful rental property.
Here are a list of services and costs you should consider adding to your budget:
|Real Estate Agent
|Price varies depending on the local market and the services offered – ranges from a 50% flat fee of the renal amount, 10% of the yearly lease, or an entire month’s rent
|Monthly expense of 8% – 12% of the rent price
|Average of $60 – $75 per hour
|Average of $30 – $50 per hour
|Average of $100 – $200 per month, large yards up to $300
5. Learn Landlord-tenant Law
Once you rent your house, you become a landlord. You are responsible for following all landlord-tenant laws in your area. There are both federal and state laws that you will need to understand:
- The Fair Housing Act – Federal law prohibits discrimination in the purchase or renting of a home due to race, color, national origin, religion, sex, familial status, or disability
- The Fair Credit Reporting Act – Federal law mandates landlords get express permission from an applicant to obtain consumer reports and only use them for the use of housing purposes. Landlords must also provide a written notice for an adverse action
- Warranty of Habitability – a set of health and safety standards required for the safety and security of a tenant including heating and air, appliances, proper trash disposal, and no pests or vermin
- Quiet Enjoyment – prohibits a landlord from disturbing tenants without advance written notice
- Security Deposits – check for a list of restrictions on what can be deducted from the security deposit in your area. Landlords are also required to return the security deposit between 14 – 60 days based on local requirements.
- Rent Control – restrictions on how much you can charge and how much you can increase the rental price per year
- Eviction – statutes that state when and how a lease can be terminated. Most states require between 15 and 60 days’ notice to the tenant
6. Get Rental Ready
Go over every area of your home carefully. Make a list of maintenance items, repairs that need to be made, and what upgrades could be added to increase the value of your home. Here are a few specific areas that need to be checked:
- Windows, window latches, window screens, blinds
- Doors, door locks
- Light fixtures
- Smoke detectors, carbon monoxide detectors, and fire extinguishers (if required)
- Air filters
- Electrical outlets
- Kitchen sink
- Toilets, sinks, showers, and tubs
Once you have an idea of the condition of your space, create a budget to help you stay on target. Determine which items you can do yourself and what you may need to hire help for.
If you have extra money in your budget, determine which upgrades would be most valuable to a renter based on your property. It’s important to remember when you are completing upgrades, that they aren’t for you or your tastes specifically. Choosing a neutral or less expensive option that appeals to more people is a good idea.
It is essential to get a second opinion on repairs, maintenance, and upgrades. If you are using an agent, ask them to come over and walk through your space. If you aren’t using an agent, ask a detail-oriented friend to come by and point out things you may have missed.
If you are having a hard time prioritizing which upgrades are most important, take a look at how other homeowners are renovating and the average costs according to Houzz:
|% of People Renovating the area
7. Obtain Necessary Documents
Landlords also need to ensure they have all of the necessary documents and permissions before renting out their house. This can include:
- Landlord permit
- Certificate of Occupancy
- Landlord Insurance
- Clearance from HOA/COA
While renting out your home may seem like no big deal, there can be major consequences for not following the law.
Failing to notify your lender that you’re renting your house can be considered occupancy fraud and lead to foreclosure, fines, prosecution, and even prison time. In addition, HOA communities that ban rentals can fine you and put a lien on your house if they discover you are breaking the rules, potentially leading to foreclosure.
8. Stage Your Space
56% of agents state that home staging affects the buyer’s view of the home. This offers major insight into the view of a renter. A well-decorated home can be the ticket to helping you find a highly qualified renter quickly.
Realistically, landlords will only be able to stage their vacant home or use virtual staging as trying to stage the home while a tenant is present doesn’t comply with landlord-tenant laws.
Follow these steps to help you set up your space for rental success:
- Ensure all repairs have been made
- Gather inspiration online or in home magazines
- Upgrade lighting/light bulbs
- Choose furniture that fits the space (not oversized or too small)
- Use neutral tones
- Hire a professional cleaner
- Restore curb appeal
- Use a professional photographer to highlight natural space and special home characteristics
9. Determine How Much To Charge For Rent
Setting your rental price is an act of balance. Even the most experienced landlords struggle with pricing their property to entice highly qualified tenants and make a profit.
Utilize the information you created in Step 2 to determine your rent minimum. Understanding the lowest rent you can charge to break even is essential.
Look over these methods to help you determine your rental price:
- Comparable Properties – Properties in a similar location, with the same square footage, bedrooms, bathrooms, and amenities
- Fair Market Value – H.U.D. evaluates rental prices each year based on market data, gross rent information, and the U.S. Census Bureau. It is typically used for affordable housing programs but it is a good resource for landlords.
- The 1% Rule – States that rent should be 1% of the property’s value.
- Location – The rental market can change drastically across the country and even within certain zip codes. Consider your area and what may affect your price.
- Seasonality – The time of year can affect rental prices—prices are typically higher between May and August and drop during the winter months.
Use at least 5 comparable properties to help you set your rental price.
Rent Concessions and When To Offer Them
A rental concession is a special offer from a landlord or property manager to entice potential tenants to sign a lease.
Rent concessions come in many different forms including:
- A month of free rent
- Gift cards
- Moving assistance
- Yard maintenance services
- Access to amenities
- Property upgrades
While offering a rent concession may cost you upfront, filling a vacancy more quickly will likely pay off in the long run. You can also use a rent concession to:
- Maintain a good tenant
- Market an older property
- Fill a luxury unit
- Establish yourself or your property on the rental market
10. Write an Enticing Rental Listing
Learning to write a good rental listing is essential to attracting potential tenants. Tenants may only give your listing a few seconds to make a good impression. Here are some important steps to take:
- Create an interesting headline – List the facts of your property in your headline to help potential renters determine if your property is a fit (e.g., price, location, square footage, number of beds & baths)
- Engage with a property description – Add 1-2 specific details about your property to continue interest (e.g., neighborhood, amenities, home characteristics)
- Identify rental terms – Specify how long the lease is, when the property is available, how much the security deposit is, and important policies such as no smoking or no pets
- Use high-quality photos – Crisp and clear photos go a long way to appeal to potential tenants
- List how to apply – Add a link to the application
- Minimum Requirements – Identify the minimum credit score, no evictions, length of employment, no bankruptcies
- Add contact information – Include your personal information or information for your agent or property manager
11. Advertise Your Rental Property
Learning to effectively advertise your property can put you ahead of the competition. With the high cost of vacancies, landlords need to make sure they are doing everything to attract the right clientele. By following a few steps, you will find a high-quality tenant in no time.
Here are a few ideas to best advertise your property:
- List on a few rental listing sites
- Price your property competitively
- Time the market to list your property at the most valuable time
- Make tenants’ lives easier by offering online options to pay rent and make maintenance requests
- Place a sign in the yard
- Utilize word-of-mouth
- Cultivate a great reputation that attracts new tenants and maintains current ones
- Use high-quality photos
- Consider paid advertisements
- Share your listing on social media channels (Facebook, Instagram, TikTok)
- Host an open house
- Hire a real estate agent
- Work with a property manager
Top Rental Listing Sites
To ensure your property is seen by as many people as possible, you need to utilize the top rental listing sites. This can help you attract tenants in a key demographic.
Many real estate listing sites are free to list your property. However, most offer a premium option that includes paid advertising, an online portal for potential tenants to apply, submit information for screening, and eventually pay rent or request maintenance.
The top rental listing sites include:
- Apartment List
- Turbo Tenant
- Facebook Marketplace
- People With Pets
Some larger sites, such as Zillow, own several rental listing sites. By posting on Zillow, you can automatically upload your listing to Trulia and HotPads making your job even easier. Consider using sites with multiple offerings to make the most use of your time and money.
Just be sure you can keep track of where you posted your listing so you don’t miss out on tenant leads and can use the tools on each site.
12. Tenant Screening
Proper tenant screening can help you avoid a wide variety of drama from unpaid rent to broken rules and even destroyed property. Bad tenants often lead to evictions, which can cost homeowners between $3,500 and $10,000.
A good tenant screening process can help landlords avoid selecting the wrong tenant. To properly screen a tenant, follow these steps:
- Ask questions on the application about their credit score, rental history, income, personal habits, and criminal background
- Collect their information and consent for a credit and background check
- Talk with previous landlords about their rental history
- Contact all references including their employer
- Analyze the rent-to-income ratio to determine if they can afford your rental price, applicants under 30% are ideal
- Review their credit history, criminal history, and rental history
- Interview top applicants and ask clarifying questions
- Choose a tenant
It is crucial that landlords also follow the proper procedures for rejecting all other tenants and avoid issues with housing discrimination.
13. Sign the Lease and Collect the Security Deposit
Although a lease is not a legal requirement, it is important to have. A signed lease helps protect the landlord, the property, and the tenant. It is an important step in the right direction for the landlord-tenant relationship. It offers a time to set clear expectations for each party and the property.
There are several lease templates available online, or you can ask your real estate agent or property manager for their standard option. Just be sure to tailor the lease specifically to your space. Your lease should include:
- Name of tenant(s)/landlord(s)
- Length of the lease
- Rent price and how/when to pay it
- Rental deposit and fees
- House rules and policies (pet policy/smoking policy)
- Normal wear and tear guidelines and expectations
Once you have signed the lease, collect the security deposit and provide the tenant with a copy of the agreement and a receipt.
14. Set Communication Procedures
Ask your tenant what their communication preferences are (call or text). Then give them a printed sheet for communication procedures. Your list should include:
- Who to contact for an emergency
- Maintenance request procedures
- Process for notification for landlord access
- Your information
- Information of the property manager (if applicable)
15. Document Everything and Go The Extra Mile
It is a great idea for landlords to get in the habit of documenting every interaction with their tenants. Not only will it help keep you from missing maintenance requests and other important information from falling through the cracks, but it also helps to build a better relationship with your tenant.
Remember, satisfied tenants may not have a reason to move. This means you won’t have to fill a vacancy and complete all the work that comes with it.
Your documentation doesn’t have to be fancy. You can use a simple Google Doc, spreadsheet, or fill in information on an app on your phone. Just make sure to write down the date, time, and what the contact was about.
Here are some ideas to go the extra mile:
- Be positive and have a friendly attitude
- Yearly birthday card, can even add a small lottery ticket for even more bonus points
- Small coffee gift card or homemade treat at the holidays
- Brief check-in after a repair was made
- Pass along any information from the HOA about special community events
- Quick surveys to determine what you are doing well and what you could work on