With the number of renters in the U.S. skyrocketing, knowing what to do when renting your house out can give you the upper hand over other landlords. Also, knowing what to look for in a renter can save you the expense of unnecessary repairs and missed rent payments.
How to go about renting your house
Renting your home has its own series of challenges, including getting it ready for renting, deciding on what to charge, and finding dependable tenants. Here are the key steps for renting out your home.
Step 1: Get the house ready for renting. Before you can rent a house, you must get it ready for occupancy.
You need to provide a clean environment for your tenants to live in free of any pests or safety hazards.
This also includes making any necessary repairs or performing any maintenance. The key areas to look at when preparing a house for rental include:
- Heating/air conditioning
- Exterior/interior paint
Make a note of any problems with the home, such as a ding in the wall, so you can keep track of any damage that the tenants do to the home while living there.
Step 2: Hiring a property manager. Before listing a property for rent, you need to decide whether you want to use a property management company.
While a property management company can lessen the workload for your, companies do charge for their services, reducing how much you receive in rent each month.
You should also consider hiring an outside company to take care of the lawn (if lawn care is included as part of the rent) or to perform maintenance on the house when needed.
Step 3: Determine amount. Next, determine how much you want to charge each month in rent.
Determining how much to charge for rent might initially seem difficult. Fortunately, by checking rent levels in your local area and keeping in mind how much you need to pay for the house if you still owe on it can help you determine a fair rent level.
Some good places to check include:
Remember to include the fee the property management company charges if you are using one.
Step 4: Determine security deposit. In addition to determining how much you want to charge in rent per month, you also need to decide on how big of a security deposit you want to ask for.
A security deposit helps guard against any damages the tenants might do to the property while living there.
When receiving a security deposit, you need to deposit it into a separate bank account. When the tenants move out, you can use the security deposit to help pay for any damages that occurred, outside of normal wear and tear, while the old tenants were living in the house. Anything remaining after this goes back to the tenant.
Step 5: Advertise. After you determine the amount of rent and security deposit, it is time to advertise the house for rent.
Some good avenues of advertising include:
Step 6: Pre-screening. Before you schedule a showing for prospective tenants, you need to pre-screen them.
Most often, you can pre-screen the tenants over the phone when they call to ask about the house. Some good pre-screening questions to ask include:
- How much gross income do the tenants bring in each month? Many landlords require at least three times more than the monthly rent in income.
- What is the tenant’s credit history? Good credit is always desirable.
- What is the tenant’s employment status? Steady employment is a must.
- Do the tenants have any references to other places they have rented? This includes whether they paid their rent on time and maintained the property.
- How many people do the tenants expect to live in the house? Most states have a limit on how many occupants can share a bedroom.
Step 7: Show the property. After you determine that the tenants check out after you pre-screen them, it is time to set up a showing of the property.
You might suggest that the tenants drive by the property first to see if they are comfortable with the area.
Prospective tenants no-showing happens a lot, so be prepared for this. You might even consider multiple showings around the same time.
Step 8: The rental application. If the tenant has an interest in renting the house, have them fill out a rental application.
You should require the following information from all adults expected to live in the house.
- Full name
- Date of birth
- Social Security Number
- Cell phone number
- Alternate phone number (if they have one)
- Previous addresses (from the last five years)
- Current employer
- Past employers
- Emergency contact information
- Each adult also needs to sign a Release of Information statement
You might also consider having any applicants provide an application fee. This fee covers any costs associated with running a background and credit check.
Step 9: Background and checks. After the applicant fills out the rental application, check their background and credit.
To check the tenant’s background for any criminal record or other oddities that might keep you from renting to them, you can visit any of the following sites.
You also need to check the tenant’s credit history, looking for such warning signs as a bankruptcy, judgments against the tenant, and an overall bad financial history. To check a potential tenant’s credit history, visit any of the following sites.
Step 10: Verifying income. You also need to verify the income of any future tenants to make sure they meet the criteria you have set.
The easiest way to do so is to ask for copies of the applicant’s previous years W2s, or even bank statements for self-employed tenants.
You can also contact the applicant’s employer and issue an employment verification request.
Having the applicant file a Form 4506 or 4506-T with the IRS represents a last resort to get a copy of the applicant’s federal tax records. While the Form 4506 takes time and costs money to file, the Form 4506-T is free and usually only takes one day to receive.
Step 11: Verify rental history. You should also check the rental history of applicants to make sure that they are on the up and up.
The easiest way is to contact the applicant’s former landlord.
You can also visit a site like ChoiceScreening.com to run a check on any applicants.
Step 12: Sign the lease agreement. If everything check outs with an applicant, the next step is to sign the rental agreement and associated paperwork, go over the rules with the new tenants, and give them the house keys.
Typically, this includes receiving a check from the tenant for the security deposit. This needs to be a separate check since the money goes into a different account where it is held for a possible refund later on.
You should also make sure the tenants understand the lease term and are comfortable with it before signing.
You should also get a check for the first month’s rent at this time, separate from the security deposit. If the tenants move in mid-month, prorate the second month’s rent as opposed to the first.
Renting a house might seem scary at first, but by following the steps above, you can easily weed out any problem tenants. By making it clear what you expect up front and having the tenant sign a rental agreement, you can protect yourself from any potential problems down the line.