With these five steps, you can learn to set up your home for rental income. Although you must understand various nuances that come with renting, this guide serves as a framework to set the expectations in the leasing process for savvy-independent owners. Usually, you would hire property managers because it would relieve you of stress, logistics, and managing homes. But if you’re renting one home, it’s best to do it yourself to understand and gain experience in renting your home.
Like all markets, the average customer decides on the prices. Renting your home is participating in a marketplace pool and being evaluated by customers. Because of that, your home is competing with other homes. It wouldn’t make sense to rent a house that is $2,000 more than its neighboring houses if it is similar in size and equipment. In that case, you must price your rental home based on its competition’s pricing.
If there are none, find recently leased homes in the past 3 or 6 months. You can then tweak the price higher or lower based on the comparables (e.g., a price higher if there are more bedrooms or better furniture). Sometimes there might not be enough data/homes to compare in the community. Thus, you can estimate a rent price based on the average nearby homes sharing similar square footage and floorplan.
Conform to Laws and Regulations
Every person providing housing in the US does not discriminate accommodation to protected classes defined in the fair housing laws. Yet sometimes, people can get into trouble without realizing it. For example, people who advertise their homes with the added public display, “great for families,” already stipulates a violation.
It’s also important to look at the laws governing renting in that particular state the house is in and even the homeowners association (HOA). Some HOAs have age-restricted communities and renting limitations (e.g., a threshold limit of rentals to owner-occupied households).
Probably the most creative of the process of renting your home is how you advertise it. You can use online marketplaces to list your homes, such as Zillow, Realtor.com, Trulia, Rent.com, Homes.com, Apartments.com. Even having for-rent signs up can spark interest in the neighborhood. By experience, neighbors do have inquiries and will ask.
Last but not least: social media. The exposure of your home in your social networks is likely to have more interest because they know you and are willing to help you with their social connections.
Making and Processing Applications
There are different ways you can set up an application. You can find some templates online and use a google form as a way for prospecting tenants to apply. They can input information such as dwelling history, income, FICO score, driver’s license, Social Security #, and references.
When processing the applicants, there are three main criteria for an applicant: credit score, criminal and background check, and income. You can use programs out there to do these background checks for you!
Depending on your criteria, it’s essential to set a standard when accepting applicants. One example is a scoring system that would concatenate all the information in a score and accept applicants based on whether the score fits the threshold. Another way is to do a truth and validity test and make sure that all information is truthful (of which you probably need to do further investigation).
Although, according to Transunion, tenants’ ability to pay isn’t predictive by their stated income because there are other sources of income (gift money) they can supply that aren’t taxable. Especially in this market, some help from connections is a norm.
Preparing and Signing a Lease Agreement
The first thought is to look for legal advice, which I strongly recommend. I’ve been practicing property management for two years, and I still have to look back on the state codes and laws to make sure everything I do is right.
However, hiring someone to consult and draft a lease agreement will cost money. I recommend contacting a local real estate agent/property manager who has a REALTORs designation to their local real estate association. There, the association already has a standard form with the terms and rights drafted by other attorneys.
Nowadays, people consider electronically signing online. This setup is relatively straightforward, such as DocuSign or other platforms. There is free software out there as well.
Words of Advice
Setting up the advertising campaign to renting the home is a great experience to have. However, it is much easier to hire a leasing agent to do the process for you as I described above without an actual property management agreement. A leasing agent has the tools to price your rental, set up advertising on many website marketplaces, systems to accept applications and get the lease signed by both you and the applicant.
Consider contacting agents in your local area specializing in property management, or through me directly. My email is firstname.lastname@example.org and feel free to message me through that. I’m happy to give some consultation or services regarding your rental.