So, you are ready to leave your first home. Maybe your family is growing, or maybe you really want to reduce the family size after your children have left the nest. But you are also considering renting your first home to earn extra income.
Turning your current home into a rental one can be a great investment. But knowing where to start can be overwhelming. How do you rent your first home and buy a second home at the same time? To help you get started, here is everything you need to know about buying a second home and renting a first.
10 tips to rent out your first house
The first step to renting out a home is to create processes that make renting easier for both you and future tenants. Do you prefer to use the old pen and paper property ownership system, want to hire a property manager, or want to become a landlord yourself with a property management platform?
However, you choose to manage your rentals, it is important to determine how you will manage your new rental business to avoid future problems. Once you have done this, you can start renting out your property.
1. Analyze your financial situation
Before making a decision to buy a second home and rent the first one, make use you can afford to pay for two mortgages at a time.
It is quite understandable that most people buying a second property hope to get some income from renting the first one. But what about the risks?
There could be some periods of time when you have no tenants, and you should be confident to cover the costs for both mortgages without this additional income stream.
2. Learn local laws about landlords and tenants
As a landlord, you need to know local, state, and federal landlord-tenant laws regarding rental properties, landlords, and tenants.
You will need to ensure that your rental applications, tenant screening process, and lease agreements comply with these laws.
3. Determine a competitive rental price
The monthly rent you set should be competitive enough to attract tenants, but not too high.
4. Promote your property with a rental listing
The goal of every landlord is to make sure that their online rental ad is seen by as many potential tenants as possible. While it’s understandable that a disorganized listing can lead to long-term vacancies, the same can be said for listing your property on just one or two listing sites.
5. Thoroughly screen each potential tenant
When evaluating potential tenants, you should look at each applicant’s tenant screening report, including information about their credit, eviction, and criminal history. Part of this process also includes reaching out to former landlords as references to learn more about the applicant from the landlord’s point of view.
6. Process rental requests fast
Processing rental applications in a timely manner can be challenging, especially if you are using paper applications or receiving multiple applications at the same time. But carefully selecting a tenant based on their application and the results of a tenant review is one of the most important aspects of your job as a landlord.
7. Use a legally approved lease to protect your property
As every landlord knows, a lease is the foundation of your rental property. It will address all requirements, rules, and disclosures associated with your rental property, as well as the rental expectations that you and your tenant are required by law to comply with.
But it’s important to ensure your lease doesn’t violate local, state, or federal rental laws. The best way to do this is to have a lawyer review or write a lease, but this can take time and cost hundreds of dollars.
8. Implement a maintenance tracking system
So, you have a signed lease and a great tenant. You need to be aware of any maintenance issues with your property to prevent further damage while maintaining the living space that your tenants are legally entitled to.
9. Collect rent quickly and safely
It’s important to make sure you have a fast and secure way to collect your rent online. While it may be tempting to continue using the old paper method of processing rent receipts, using rent collection apps makes it easier for tenants to pay rent online and keep track of their rental income.
10. Protect yourself with renter’s insurance
A great way to protect yourself as a landlord is to invest in landlord insurance. This type of coverage is specifically for landlords who rent out their house, condo, or apartment. There are different types of coverage to consider, but each plan will generally protect against property damage, loss of income, and liability.
3 tips on how to buy a second home
Never before has there been such interest in buying a second home around the world as it is now.
However, buying a second home should be approached with a clear plan of action. Make sure you weigh the pros and cons before taking this big step forward in your personal financial world.
1. Calculate all the expenses for buying a second home
The amounts will vary, but here are some expenses you might want to include in your monthly budget: insurance, utilities, maintenance, etc.
2. Decide how you will finance your second home
Lenders typically offer different rates and may have different eligibility requirements for second homes than they do for investment properties.
3. Qualify for a Second Home Mortgage
Whether it’s a vacation home or investment property, lenders see second homes as riskier. The minimum credit rating requirements are generally higher and the maximum debt-to-income ratio is lower than for a primary residence.
You will probably have to make a larger down payment for a second home. This large upfront payment can substantially increase your initial cost, but could potentially lower your lifetime cost if it results in a better rate.
Should I rent out my house and rent another?
It may make sense to rent out your house and rent somewhere else if the rent is equivalent.
There are many more factors to consider when determining the costs and benefits of your approach. Being a landlord can be a great option if you have rental management experience or are an excellent property manager. Otherwise, you may find yourself buried under endless rental problems that you don’t know how to solve.
Should I buy a house with the intent to rent?
While there are financial benefits to investing in rental properties, you will need to understand taxes, mortgage payments, maintenance costs, and your desire to be a landlord when deciding whether owning a rent is a smart financial move.
Investing in real estate for income is not for everyone, but if you treat your investment like a business, are tolerant of the inherent risks, and know how to handle the hammer, the financial rewards can be substantial.
If you are moving, it may be easier to just sell your home. But consider buying a second home while renting out the first. If the amount you can get in rent each month covers your mortgage payment in addition to your monthly apartment or landlord expenses, renting your house is a smart decision.
This option is definitely worth considering due to the growing demand for rental property. But before you turn your house into a rental, be sure to weigh the pros and cons, evaluate your financial situation and calculate the numbers to understand the potential profit.