Renting out your house: How to make your home work for you
Dec. 1, 2020 • 5 min read
What we'll cover
7 things to consider before renting out your home
Differences between short-term and long-term rentals
How to determine what to charge for rent
We’re all looking for ways to bring in more money these days. And having some extra cash on hand is always a good thing. But instead of making money from home other side hustles, what if your home was the thing making you money?
You might’ve considered renting your home from time to time. And with online rental services, it’s never been easier to turn your home into a potential source of income. But is it worth it? Does it make sense in the short-term? Or maybe the long-term?
7 things to consider before you hand over the keys
In many scenarios, renting can turn your house into an extra income opportunity for you (that doesn’t require a massive amount of effort). We don’t want to minimize it though, so note: It will require some time, resources, and possibly even some money. So, before you post your listing, think about:
1. Short-term vs. long term
Both long-term and short-term rentals could prove to be beneficial to your bottom line, but the process you follow will likely change depending on which direction you take (but more on that later).
If you frequently get away or are often out of town on the weekends, you might want to consider offering your place up for short-term rentals. That’s because they make the most sense when you can only rent periodically and not for a lengthy amount of time.
But if you know you’ll be living elsewhere for extended periods of time (think: several weeks or even months at a time), a long-term rental could be the better option. Long-term renters usually look for a place with at least a three-month availability, although six months to a year are more desirable.
2. Rental demand
Do you live in a tourist-friendly area, like near the coast, a lake, or a major city? You want to make sure there is strong demand in your area for rentals. If there isn’t, you might find it hard to rent or meet your target rental fee. Take a look at rental listing websites and search for rentals in your area. If there aren’t many listings or comparable rentals aren’t asking for much (or enough to cover your costs), you may want to rethink before you list.
3. The law
In some states and cities rules and regulations may prohibit short-term rental services like Airbnb. And there can be laws that require you to bring your property up to safety and building codes. For longer-term rental situations, you’ll need to abide a variety of federal, landlord, and tenant laws (including the Fair Housing Act or FHA) in a wide variety of scenarios from leases and tenant communication.
Search online for terms like “home-sharing laws” or “landlord tenant laws” in your city or state. Online rental websites often list local laws and regulations, or you can contact your city or government for more information.
4. The cost
Regardless of your rental length, you will likely incur some expenses that can add up. Factor in maintenance costs — a general rule of thumb is 1% of the property value each year. For longer-term scenarios, if you elect to use a property management firm, it may cost 8 to 10% of your monthly rental fee.
Additionally, you will have to pay to advertise your rental and website service listing fees. Your homeowner’s insurance policy could increase in price, and you’ll need to file your taxes differently, paying special attention to rules surrounding capital gains tax and exemptions.
5. Finding tenants
You’ll need to post your listing across social media and on sites such as Craigslist, Trulia, and Redfin, and be responsive to any queries. You can even elect to go old school with “for rent” signs. Word of mouth could also be helpful in letting people know that you’re looking for renters.
While the benefits of renting may be obvious (income!), it can be easy to downplay the responsibilities that also come with the process. Being a landlord (and even short-term hosting) requires you to fit more responsibility into your life — cleaning, painting, and repairs, or the time needed to hire someone to do these tasks. You should assume that sometimes things won’t go as planned.
7. Your goal
More than just a financial opportunity from additional income streams, choosing to rent your house might come from a place of necessity (like a last-minute job transfer). You might have your own reasons for renting out your home, but some common motives include:
You tried selling, but the real estate market isn’t landing you the sale price you were hoping for.
You’re being transferred out of your area for work. Or you’ve accepted a new job and need to relocate.
You owe more than your house is worth, but thankfully, can cover the cost of the mortgage with the rental income.
You bought another home, but don’t need to sell your current home to cover the purchase cost and would like to turn it into a rental asset and income stream instead.
Renting out your home when you’re away on vacation or the weekends can help pay for home renovations that boost the value of your home.
If you’re committed to offering a short-term rental …
Websites like Airbnb, Vrbo, and the like can make renting your home much more turnkey.
For a percentage of your rental price, you can:
List your home without sign-up charges.
Rent small spaces like a spare bedroom.
Choose your schedule, price and rules for houseguests.
Message directly with potential renters.
Utilize a two-way review process to vet guests.
Receive liability protection.
If a long-term rental feels more right …
When you offer a long-term rental, you become a landlord. And that comes with some additional responsibilities like:
Rental applications, background checks and credit checks
Security deposit and lease agreements
Despite this, long-term rentals can also mean less overall hassle since they typically involve less frequent turnover.
How much should you charge for rent?
If you’re ready to rent, you might be wondering how much you should charge. To price your abode, do market research — look at what rentals of a similar location, size, and condition are going for in your neck of the woods.
For long-term renting, you’ll want to take a look at real estate listing sites such as Zillow or even bring in a home appraiser (which may be an additional expense) who can give you the most accurate assessment, so you’re competitive with similar properties out there. And for short term rentals, look at similarly finished and furnished units on Airbnb and Vrbo to find out what you should charge. Just make sure you’re pricing your property reasonably, but also in a position to make a profit.
A good general rule of thumb to follow: Typically, landlords charge between 0.8% and 1.1.% of the home’s value. So, for example, for a home valued at $250,000 you could charge between $2,000 and $2,750 each month.
Make your home work for you.
Purchasing a home is one of life’s biggest expenses. And renting it out — whether for the short-term or long-term — can provide you with some additional cash flow. Doing so takes a bit of finesse, logistics, and homework, but it could be the right money-making opportunity for you.
Before you start the search for tenants, consider making some home improvements that could increase your home's value and even allow you to charge more for rent.Chek out these ideas.