Are you going on a long-distance move and need to get rid of your South Florida house fast? Or maybe you inherited a home and you don’t know what to do with it? It may be tempting to sell your house as it often seems like the only option, but did you know that turning it into a rental is often more profitable? In fact, real estate investors earn an average of $97,000 a year, which is way more than what you can sell your house for, even if you rent it out for only five years.
Successful real estate investors typically start their careers by converting their primary homes into investment properties. By doing the same, you’ll be well on your way to becoming a legit landlord. It’s worth mentioning, however, that you can’t switch your residence into a rental property in an instant. There are certain steps you need to take, which we’ll talk about below.
Are you sure you want to be a landlord?
Being a landlord is not a glamorous game. It’s demanding, and there’s a good chance that you’ll have to give up the rest of your duties to deal with day-to-day maintenance, repairs, and not to mention bad tenants. With that said, you’ll also have to be willing to run after your tenants’ overdue rent. Don’t get us wrong, being a landlord is incredibly rewarding, however, it takes a lot of work to get there. If you’re planning on converting your house into an investment property, make sure that you know what it entails.
If you can’t commit to it fully, you could always hire a property management company to come and help you with your landlord duties. This is especially true if you’re going to be a long-distance landlord.
Is “yes” your answer to, “are you sure you want to be a landlord?” Here’s what you need to do to turn your primary residence into a rental property:
#1 Get landlord insurance
Your current homeowner’s insurance policy won’t cover your house once it serves as an investment property. As a landlord, you need to protect your property (and your tenants) to a certain degree. What if there’s a fire? What if the property is damaged and it needs to be repaired as soon as possible? If you don’t have landlord insurance, you’ll be forced to pay for property repairs out of pocket.
Make sure to consult with a property management agent to know which insurance policy you should get. Be sure to understand the types of covered perils, and to advise your tenants to obtain renter’s insurance, too.
#2 Check your HOA’s bylaws
Do you live in a neighborhood that’s governed by a homeowners association (HOA)? If so, there might be rules regarding rentals in its bylaws. While it’s uncommon for an HOA to ban rentals entirely, they may allow only a few homes to be rented out. For instance, an HOA may allow only ten houses to be rented out at a time. If that’s the case, you’ll be put on a waiting list until one of the homeowners decides to stop renting out their house.
If your HOA allows rentals, be sure to find out who’s responsible for paying the association dues. Remember, even if you are no longer living there, it’s still your name that’s on the list of members. As a homeowner, you’re obligated to abide by the HOA’s rules, so be sure to review them to avoid being fined.
#3 Obtain the permits
Your property won’t be a residence anymore, so you’ll need to obtain a permit to operate it as a rental. This permit indicates that the house is safe to be rented and that it follows the building code. Whether or not you need a permit depends on the county, city, or municipality, so it would be wise to consult with your property management firm or real estate attorney.
An inspector will visit your investment property to see if it’s free from safety issues such as mold, asbestos, and more. If the inspector spots any safety concerns, you will have to resolve these issues and schedule a second inspection. You can only rent it out once the property is completely compliant.
#4 Make the necessary changes
Is your house marketable or do you need to make repairs to make it more appealing to potential tenants? Prepare your property by conducting low-cost upgrades such as repainting the walls, repairing the cabinets, adding a patio, and so on. Keep in mind that you shouldn’t spend a fortune – all you need to do is to make sure that it’s “rent-ready”. If you go overboard, your property’s value will increase, but so will your rental rates – that might be good news for you, but it definitely isn’t for your potential tenants.
So, how do you know which upgrades you should splurge on? You can consult a property management company that knows the market. Not only will they be able to identify the upgrades that generate the highest returns, but they’ll also be able to connect you with local contractors that can provide services at a competitive rate.
#5 Set your rental rate
When your property is rent-ready, you can decide the amount of rent that you want to collect from your tenants. Understandably, you’d want to be able to charge the highest possible amount, but remember that more isn’t always better when it comes to the rental rate. If you set your rent too high, you’ll have a hard time attracting tenants. On the other hand, if you set it too low, you won’t be able to earn enough money to pay your mortgage, property management fees, and more.
One way to determine the amount to collect is to compare your property with similar properties in the area. If you want an accurate calculation, hire a property management company or real estate agent that can conduct a real estate market analysis.
Need help turning your residence into a rental?
Luxury Property Care has been in the business for over fifteen years, so we know the ins and outs of the market like the back of our hands. With our expert guidance, you can convert your primary home into an investment property in no time. Let our property management agents help you get your property rent-ready today.