I bought my first home with the intention of eventually keeping it as a future rental property. It worked out great because when I bought the home with an FHA loan I only had to put down 3.5%. This is an excellent strategy especially for someone with limited funds. In theory you could even buy a new home every year and rent out your old homes, completely avoiding those pesky 20% down payments. Here are some tips for when you decide to convert your home into a rental property.
If you’re anything like me, you calculated what your home would rent for before you bought it. There’s no cheaper financing than homeowner mortgages, so why not build your empire through simply keeping old homes as rentals?
But converting your home into a rental property isn’t quite as easy as flipping a switch. Renters aren’t going to treat your baby with the gentle touch that you did, and they won’t be as forgiving as your spouse when something goes wrong.
So what must a soon-to-be-ex-homeowner do when preparing their home for its second life as a rental property?
Jump Through the Bureaucratic Hoops
In many large, hyper-regulated cities, rental properties must be registered, inspected, and levied with fees — sometimes with more than one governing body. In my home city of Baltimore, landlords have a bare minimum of three sets of red tape. They must register all rental units with the City and pay an annual fee (of course). They must register all rental units with the State (the Maryland Department of the Environment), pay another annual fee, and submit lead paint paperwork. This, in itself, is an expensive set of headaches: Every rental unit must be inspected and certified by an approved lead inspector — in between every tenancy.
Check your local laws, and recheck them often, even if you think you know them. Being informed goes a long way in helping you avoid hassles, heartaches, and hurt profits later.
Stock Up on Air Filters
Your next hard-knock landlording lesson: Most tenants won’t do anything for your property unless you make it unbelievably easy for them. Stock up on the right size of air filter, and place them right next to the filter slot. Then, write down the exact filter size, write it on a sticky note, and put it on the refrigerator with the words, “Please remember, every 3 months!” You might go so far as to set a reminder in your smartphone calendar to contact the tenant.
An independent and intelligent person might wonder, “Why do I need to write the filter size in several places and remind the tenant to change it?”
Because otherwise, someone will find a way to mess it up.
Protect Your Hardwood Floors!
If you have hardwood floors, they probably won’t look the same after your first set of tenants moves out.
With that said, there are a few things you can do to try and protect them. First and foremost, write a very explicit clause into your lease agreement requiring renters to put felt pads on all furniture feet before they move in.
But like we just outlined, you need to make it easy on the renters if you want any hope of compliance. Buy a pack of felt pads (with a variety of shapes and sizes), and hand it to the tenant when you sign the lease package. Reiterate verbally the requirement that they put felt pads on all furniture feet, and tell them the first pack is “on the house.”
As importantly, it makes it a lot easier for you to deduct money from the security deposit if they damage your floors. Wrap up that discussion with. “Believe me, I’d much rather have the property back looking like this than keep your deposit.” Friendly, but still a reminder it will cost them if they ruin your gorgeous floors…
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