Some homeowners may be thinking of becoming landlords. With today’s rising housing costs, renting may be a great way to pay off the balance on a mortgage or benefit from an additional stream of income. Explore a few considerations before renting out a property.

For informational purposes only. Always consult with a certified tax expert before proceeding with any real estate transaction.

Can All Properties Be Rented Out?

Before having a potential tenant fill out a rental application please realize that not every home can be easily rented out. Some individuals may have chosen to own property in an area governed by rules set forth by a homeowners’ association. Homeowners should should know and check HOA rules before considering renting out their home as they may not be aware of some rules that may restrict how they choose to use their new home.

Though some HOA’s may restrict an owner from renting, this may not apply to all homes is such communities. There may be certain situation, such as economic hardship, that may allow for homeowners to rent out the property. It is best to speak with the HOA management to find out if it is possible to do so prior to putting in the time and effort to find a tenant. Home buyers need to know about HOA’s and become familiar with the HOA where they may purchase a home in order to become a landlord.

How Much Profit Can Be Made from Rentals?

Homeowners who are looking to earn additional income need to be aware of a few factors. The best situation is to own a rental property outright with no mortgage. Individuals with mortgage payments may not see much of a profit if a few repairs come up, or they cannot get a tenant for a few months. Owning your rental home outright, also makes it easier to be flexible with short-term leases or maybe a one-year lease where you know the tenant will not be extending their lease e.g. renting to someone on sabbatical for a year. 

Know how much rent can be charged. Research comparable homes for rent in the area. Feel free to drive by and do walk-throughs of similar homes to know whether a property would be able to be rented for more than the average expected. There may be additional factors to consider, such as fees that may apply to pets, and whether the landlord or the tenant will be paying utilities.

There are expenses that still come up when renting a home out. It is useful to budget for such things as property taxes, make-ready repairs, management fees, homeowner association dues and more. Subtract all expected expenses (including the mortgage payment if there is one) from the rent charged to decide if it will be worth renting out the place.

How Can You Choose a Good Tenant?

Landlords do not want to lose potential income on a tenant that cannot make regular and timely payments or have to go through the process of evicting a tenant for non-payment. To avoid such situations, it is useful to screen applicants and inquire into their:

• Employment history
• Income level
• Credit score
• Tenant Screening Reports
• References

All of these areas may provide information to a landlord or indicate red flags. After choosing a tenant, it is useful to have the party sign a lease agreement that would review any rules or instructions. Taking steps to screen applicants and go over any questions within the lease agreement like the difference between lease start date vs move-in date, for example,  can make it easier to rent the property and address any concerns that may come up.

Remember that federal, state and local laws prohibit discrimination in rental housing based upon a various number of factors including race, color, sex, age, handicaps, and family status. The following are types of illegal discrimination that are covered by the above federal discrimination acts: Race, Color, or Religion. National Origin. Some states and localities also add sexual orientation as well as other classifications. Research and be familiar with discrimination laws in your area.

Are You Ready?

There are responsibilities that come with renting property out. It is important to have the time to take care of the management of the property or ensure that the right people are hired to do so. Understand more about landlord obligations prior to buying a new home in Brooklyn Park and then listing a property for rent.

For informational purposes only. Always consult with an attorney or certified tax or financial expert before proceeding with any real estate transaction.