Renting Out Your Home

You own a house and you think you are going to make some quick and easy money renting it out. However, it is not as easy as it sounds. There is a lot of work that goes into being a landlord and some people are just not cut out to be one. Prior to renting out a house, one must look in the mirror and ask themselves if they can do it. Can you evict someone? Can you financially take care of the house if you have no renter or the renter does substantial damage? Can you understand and follow all of the federal, state and local real estate laws? There are a lot of questions to ask yourself and once you start the process it may be hard to stop it, if you find out that you are not cut out to be in the real estate business.

Prior to deciding on renting a house out, you will need to take taxes into account. Federal guidelines do allow for persons living in a home for two out of five years to have a tax break. The good news is that those renting out their home can still be eligible for this tax break. Remember, rental income is taxed as income but your expenses and depreciation values may cover your tax bill. Expenses include maintenance and repairs to the property, mortgage interest payments, property taxes and anything else in regards to owning and managing a property. However, improvements can not be deducted. The difference between improvements and repairs is that to qualify for a repair, something must be broken like a window. An improvement would be something to make the house look more appealing like a hot tub or hardwood flooring. While you cannot deduct improvements on your taxes, they will suffer depreciation in the future. All of this is very complicated and prior to filing taxes, you should consult your accountant.

If you have a home that has appreciated a lot since you purchased it, do not rent it out. An example of this is a home whose purchase price was $125,000 and five years later it is valued at $300,000. By selling the home you would lock in your gain. By renting it, you could lose the gain and also you will be required to pay tax on it.

The day to day management of a property can be time-consuming, but rewarding. Prior to renting your home to anyone, you must require an application. Be sure to ask for the applicant's full identity, rental history, personal references, credit cards and picture identification. You are required by federal law to screen all applicants the in the same, non-discriminatory way. Always check rental history by going back at least two or three residences. By only going back one residence you risk having a landlord that wants the applicant out, whereas, landlords from 2 or 3 residences back will not feel the same way. If you are going to perform a background check, and you should, be sure your application includes a disclosure box notifying the applicant that you will do so and make them sign it. Prior to signing any rental agreement, be sure to have a real estate lawyer read over it. Do not hire any lawyer to do this. Reading over a real estate agreement must be done by a real estate attorney, because if the lawyer does not specialize in real estate then he or she will not be aware of any changes made in the laws. Last but not least, be sure you understand all federal, state, and local laws regarding renting properties.

If you still want to rent, but really do not want to manage the day to day, look into using a property management service. These services usually cost about ten percent of the monthly rent and depending on your contract these services can take care of everything from repairing a window to screening applicants.

Renting a house or multiple homes can be a lucrative investment if it is done right. It can be a scary adventure if this is your first time. However, take your time and ask questions when you do not understand. This is your home, your money and only you can take care of it.