Choosing to be a landlord is not at the top of the head of everyone. With the fast-changing economic situation, people are looking for ways to earn profits. Many first-time landlords are either real estate agents or have tons of property they want to utilize to its full capacity. Whatever the reason, landlords can quickly turn their home into a property if given the right chance and of course the will to earn a passive income.
In this blog, we have mentioned some of the ways a potential landlord can implement to convert their home into a rental property. However, its imperative to do your research on changing policies in the real estate industry.
- Always weigh the pros and cons
Making your home a rental property requires a significant investment. Realistically assess whether owning rental property is something you can handle right now. Here are some benefits and drawbacks to renting out your home.
The benefits of owning rental property include the ability to build wealth and diversify or supplement your income.
- The income you receive can be used to help pay off your mortgage for new property in Capital Smart City while also providing additional cash flow.
- You can postpone selling your home if it has been on the market for a long time and you haven’t received an offer that allows you to break even.
- If you inherited a property but do not want to sell or live in it, renting is an excellent option.
- If you rent out your home, you may be able to claim some tax breaks.
Interesting prospects right? But there are a few cons to be aware of as well.
- It can be very time-consuming if you decide to manage the rental yourself.
- You will be responsible for rental property expenses such as real estate attorney fees, routine maintenance, landlord’s insurance, and others.
- Because markets fluctuate, your rental property may generate less rental income than anticipated.
- If your rental property is vacant for an extended period of time, it is vulnerable to theft and vandalism.
- Do you have a mortgage?
If you have a mortgage on your home, you must generally live in it for at least 12 months before converting it to a rental. Read your loan contract and/or contact your lender to determine the waiting rules that apply to your loan. You don’t want to be accused of mortgage fraud, so it’s critical to understand the rules.
Mortgage fraud occurs when you say you’ll live in the home but actually buy it as an investment property. If a lender discovers that a property owner has committed fraud, the loan may be called in, which will almost certainly result in foreclosure.
- Can you get another mortgage?
If you are leaving your primary residence and intend to purchase another, you must first determine whether you will qualify for a new mortgage before renting out your current residence. The bank may consider the rental income generated by the property for your new loan, but this is not always the case. Before proceeding, contact your mortgage lender and start the conversation.
- Renew homeowner insurance
Insurance policies for primary residences differ significantly from policies for rental properties, so it is critical to switch to a landlord’s policy. If you file a claim with your primary insurance company after converting to a rental, the insurer may deny your claim, forcing you to pay out of pocket.
Landlord insurance will protect you not only from damage to the rental property, such as a tree falling on the house, but it will also cover legal fees and medical bills if you are found liable for your tenant’s injuries. Contact your insurance company as soon as you decide to start renting out your home.
- Update about tax changes
It is recommended that you consult an accountant when preparing for your rental property, but there are some fundamentals you should understand as a landlord. Because your rental income will be taxable, figure out how your tax rate will change. However, if you convert the house into a rental property, you may be able to deduct rental property expenses such as:
- Taxes on real estate
- Mortgage payments
- Renovations and repairs
- HOA dues
- Insurance for landlords
- Utilities (if you pay them)
- Prepare the property
To attract renters and set a competitive rent price, you’ll most likely need to invest in improving your home’s curb appeal. You don’t have to finish a home improvement project all at once. Begin by making a list of the improvements you want to make, and then work your way through the list. For example, if the rental property is in a warm climate, investing in a pool may be worthwhile, but it is a luxury amenity that can be postponed.