How to Convert Your Home Into a Rental Property

Are you considering moving into a new home and don’t know what to do with your current home?

For most homeowners, selling is the first thing that usually comes to mind. However, this may not always be the best option. This is especially true if any of the following is true. 

• When you haven’t built enough equity in the home. Selling the house would mean losing money. 
• When the market favors buyers. In a “buyer’s market”, you may need to lower the asking price or make other concessions to attract buyers. 
• When the interest rate is high. This can make the home expensive for buyers to finance the mortgage, reducing demand for your home. 

But there's another option to explore. You could convert your home into a rental property. Becoming a landlord can provide you with numerous benefits. Including, earning a passive income, having more tax deductions, and potential for future appreciation. 

If renting out your property is an option you could consider, here’s everything to know about investing in real estate. 

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Know Your Landlord Responsibilities 

Being a landlord isn’t for everyone. That’s why it’s important to know whether you have the requisite skills needed for the job by asking yourself certain crucial questions. 

These include:

• Am I prepared to handle potential emergencies at all hours? 
• Do I have enough money to pay for any unexpected expenses? Examples of such emergencies may include major repairs and legal fees. 
• Do I understand landlord-tenant laws in my area?
• Do I enjoy dealing with people and resolving issues?
• How will I be able to determine the rent amount?

If you think you can handle these responsibilities, being a landlord might be for you. However, if not, then consider hiring an expert property management company to do it for you. Ideally, go for a full-service property management company to help handle everything on your behalf. 

Obtain Another Mortgage 

If you’re planning to move to a second home, you’ll of course need to think about getting another mortgage. Shop for a mortgage that fits your needs. 

The following are some of the things you could do to increase your chances of obtaining a mortgage. 

• Improve your credit score. You could do this by reducing your credit card debt, paying your bills on time, and avoiding new credit applications. 
• Save for a larger down payment. This can help you secure a lower interest rate. 
• Work with a mortgage broker to help you navigate the mortgage process
• Maintain a stable financial situation, such as continuing to manage your finances responsibly 

Another thing that can boost your mortgage preapproval from your lender is the potential extra income from your rental property. This is because lenders often consider the debt-to-income ratio when it comes to mortgage qualification. 

Obtain the Right Insurance Policy 

Now that you’ll be converting your current home into a rental property, you’ll need to obtain the right insurance policy to protect it against certain perils. 

A standard homeowner’s insurance policy does not cover a rental property. This is because a rental property is considered a business asset, which is a tad bit riskier than a primary residence. 

As such, you’ll need to take a landlord’s insurance policy. This will cover a variety of situations if the unexpected happens. Including, the cost of damage to the property’s structure, maintenance equipment, outdoor features, loss of rent, damage from natural disasters, and even legal fees in case of disputes. 

Please note, however, that a landlord’s insurance policy won’t typically cover the tenant’s belongings. For this reason, require residents to obtain insurance of their own. Specifically, require them to obtain a renter’s insurance policy. 

A typical renter’s insurance policy will provide the tenant with three types of coverage to cover them, their belongings, and their living arrangements after a covered loss strikes. 

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Inspect the Property Thoroughly

Rental properties need to abide by certain health, safety, and building codes. As such, before you rent it out as-is, make sure you have it inspected by a qualified inspector. This will help you identify issues that may impact the unit’s livability. 

Some of the issues you’ll need to address quickly include the following. 

• Mold. This can cause the tenant respiratory issues and allergies. 
• Pest infestations. Bed bugs, rodents, roaches, and other pests can render your unit uninhabitable. 
• Lead paint. This is common in homes built before 1969. Lead-based paint can be a serious hazard, especially for children. 
• Fire hazards. Such as blocked exits, faulty wiring, and lack of smoke detectors. 
• Structural issues. Such as cracked foundations, sagging ceilings, and unstable staircases. 

While fixing these issues will cost you money upfront, they will save you from costly repairs later on. 

Increase the Property’s Desirability 

Once you have fixed the basic issues, make an extra effort to improve its desirability. The more attractive it’ll be, the easier it’ll be to rent it out. These include renovations as well as improvements.

The following are some of the things you could do to improve its desirability in prospective tenants’ eyes. 

• Improve the curb appeal. You could do that by maintaining the lawns, trimming the hedges, and planting colorful flowers, among others. 
• Freshen tired-looking walls with a new coat of paint 
• Update outdated kitchen appliances with new ones 
• Replace worn-out carpets with tile, hardwood, or luxury vinyl plank 
• Improve lighting with new fixtures, brighter bulbs, and consider adding recessed lighting 

Charge the Right Rent Amount 

At this point, the only major thing you may be left to do is set the rental rate. But without any prior experience as a landlord, this may not be an easy thing to do. 

As such, you may want to hire an experienced property manager to do it for you. A good property manager will have the tools, knowledge, and expertise to help you compute the best rental rate for optimal returns on your investment. 

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Bottom Line

Converting your home into a rental property can be a good option if done right. It can provide you with numerous benefits, including a recurring passive income, all while appreciating in value over time. 

Sand Dollar PM is a reliable and professional property management company in Central Florida. Let us worry about managing your property as you focus on other priorities in your life. Get in touch to learn more!