Tips to Rent Out a House to Tenants

How to Rent Out a House Without the Headaches

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There are plenty of valid reasons to rent out a house. Maybe you don't have to sell in order to buy another, and you might want to keep it as an investment property. Renting out the house might have been your plan when they bought the property.

Still other homeowners might be forced to rent because they have to move and they can't yet sell. Maybe they've been transferred by an employer and realize they can't sell their house because the current market just isn't conducive to home selling. Sellers of underwater homes might prefer not to do a short sale and might elect to try to ride out the market instead.

In any case, there's a right way and a wrong way to go about renting out your property. Some mistakes might be minor, but others can be far more serious.

Know the Law

The importance of this first rule can't be overstated. Each state—and sometimes counties and municipalities as well—have laws in place to govern issues such as security deposits, evictions, and when you can enter the property after a tenant has taken residence.

Tenants have specific, codified rights that can vary from location to location, and you could find yourself in court if you violate any of them. Your local housing authority might have preprinted summaries of the laws where your home is located, or it should be able to steer you to where you can access them.

You'll also want to be sure you understand all the many potential areas of housing discrimination, both at the state level and as covered by the federal Fair Housing Act.

Be sure to take pictures of your property in pristine condition before tenants move in. This will protect you in the event of any damage disputes that you might have to pursue in court, depending on your state's laws for security deposits.

Screen Your Tenants

A prospective landlord should gather certain information about a tenant before renting out a house to a stranger. Your best tool for this is a comprehensive rental application form.

Determine past and present employers, and you'll most definitely want to know the identities of any former landlords. Ask for contact information for everyone. Let prospective tenants know that you'll be reaching out to these individuals.

Ask for and check personal references. All told, you should try to speak with at least three different people from employers to landlords to personal contacts.

Pin down tenants' incomes and their present monthly debt obligations in addition to their credit scores. Ask for Social Security numbers and make sure tenants understand that they'll be used to run their credit reports. Make sure they sign off on this on the application, and be sure to stay within the guidelines of the Fair Credit Reporting Act.

You'll probably want to run a police report as well, and these reports can also require that the tenant knows you're doing this.

You'll want to know the number of occupants you can expect, as well as the number and types of pets, if any.

Get a look at the tenant's automobile to determine if it's clean and in good condition, or beat up and trashed. This could be an indication of how the tenant will maintain your rental house.

Hiring a Property Management Company

You might want to contract with a professional management company if all this seems too time-consuming and overwhelming. Management companies typically charge from 8% to 12% of the monthly rent with an average of about 10% for single-family residences, but they'll do all the work.

A competent management company will advertise the house for rent and screen potential tenants. It will collect security deposits, as well as rent going forward. It will negotiate rental agreements and sign leases. It will file eviction actions, if necessary.

Most management companies will also conduct periodic property inspections and handle repair issues. They'll deal with companion pets and the law. In fact, they'll be familiar with all the laws that must be followed in your area, as well as with any city fees that must be paid.

A local real estate agent might be your best source to get recommendations for property management companies.

Don't Overlook Insurance

Your existing homeowner's policy will most likely not cover you if you rent out your property. Now you'll need rental home insurance, which basically covers structural damage to the home, medical expenses, and loss of rental income. Some policies offer more.

You might also want to urge your tenants to purchase their own renters insurance to cover their personal belongings.

At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.