Renting out a property can seem like a smart business option for a property owner given that he can offset the mortgage, property maintenance and other costs by the rental income and make sure the property remained in a good condition. Yet most property owners remain wary about turning landlords fearing litigation in the event of a conflict with tenants and often decide to keep their properties unused or sell them off. They also have concerns with respect to tenant behavior, possibility of the property being misused, default in payment of utility bills, among others. However, if he chooses a tenant(s) well, a landlord can end up with a source of regular monthly income till the time he decides to sell the property.
Here are some tips for property owners thinking of renting out a property:Understand the rental marketBefore deciding to become a landlord, one must do a thorough rental market research. Alternatively, hire a good real estate agent who can fix a realistic rental for the property, educate you about rental laws and help find a good tenant. One must, however, be patient as finding a good tenant could take time; until that happens, be prepared to shell out mortgage payments and other maintenance costs.
Be prepared to bear costs of maintaining a propertyMaintaining a property can be a costly and cumbersome affair. Aside from mortgage payments, other costs that a landlord would have to bear include property taxes, homeowners insurance, homeowners association fees, maintenance and repair costs. Add to that the additional expense of hiring a property manager, in case your property is in some other city or state.
A prospective landlord must also factor in expenses of engaging an attorney to handle legal matters, and administrative costs of interviewing potential tenants, checking their credit histories and references. He may also need to pay a retainer to the tax expert who has to be consulted to understand tax liability and costs that are tax-deductible.
Fix a competitive rentalIt is imperative to fix a rent price that is in keeping with the market rates. This would require consultation with good property agents, and scanning property ads both on the Internet and in newspapers. You should also check the rentals of other properties in the area to determine a realistic rate for yours.
Screen the tenant wellThis perhaps is the most challenging part about renting out a property. Doing a thorough background and credit check of a potential tenant is absolutely important to avoid legal complications later. Your rental application must seek all personal details and rental and credit history of potential tenants. It also should seek solid references which you must check before deciding to take on the tenant.
Get a lowdown on rental lawsBefore renting out a property its important to know your rights as a landlord to head off a legal challenge from a tenant in future. You must also have set criteria for all tenants to gauge their personal and financial history. Also, consult an attorney to understand your obligations as a landlord so that you dont find yourself at the wrong end of the law at any point.
Switch your insurance policyIf you have decided to rent out your property, you must switch from homeowners insurance policy to rental-home insurance policy. The latter costs less, as it would just cover the building and not its possessions. The tenants, however, could take a renters insurance to cover their liability and belongings.
Consult a tax consultantA tax consultant would guide you as to how to deduct mortgage interest, insurance premiums, depreciation, and repair costs among other expenses from your income while filing your returns. Also, he could advise you on how to claim tax-free profit on the sale of your property at a later date.
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