Thinking about becoming a landlord? Renting out a house can be a great way to add extra money to your budget—whether you have an entire house or just a room to spare.
Maybe you’re thinking about renting out your house because you need some help with your mortgage. Maybe you just inherited your parents’ home but have no plans of moving into it. No matter what brought you here, you’re wondering how to rent a house—and we’ve got answers for you.
How to Rent a House in 9 Steps
1. Decide if It Makes Sense to Rent
2. Set Your Budget
3. Do Research on Rentals in Your Area
4. Talk to Your Insurance Agent
5. Make a Property Management Plan
6. Write Up a Rental Lease
7. Find and Screen Potential Tenants
8. Choose a Tenant
9. Document the Space Being Rented
Step 1: Decide if It Makes Sense to Rent
Before you jump into the shoes of the landlord, you need to make sure those shoes are going to fit. That means taking a good, hard look at your situation and making sure this is a smart move for you.
If you’re thinking about investing in a rental property, you should pay cash for the home. If you’re not in the position to put 100% down, don’t buy the house. It’s that simple. Don’t count on rent from a roommate or tenants to cover the mortgage. Wait until you have the money to afford the entire house on your own, then buy the house.
What should you do if you’ve already bought too much house and can’t afford the mortgage payment on your own? Sell it.
On the other hand, if you have a spare room, in-law suite or a paid-for house, you can start planning for how to best rent out your home.
Let’s look a little closer at three common situations . . .
Situation 1: Renting Out a Spare Room
Maybe you’re thinking about finding a roommate to help with your monthly mortgage payments or to help pay off the mortgage early. Before you agree to sharing your home, you have to be honest about your tolerance for living with others and if the extra cash will be worth the trouble.
- You’ll have more cash. According to Experian, the national average mortgage debt is $208,185, up roughly 11% in the past decade.1 If a homeowner has the average mortgage debt—with 20% down at a 15-year fixed rate at 3.66%—the loan payment would be around $1,465 per month. A roommate who chips in half can bring the payment down to about $732! How much could you save with a roommate? Use our mortgage calculator to find out.
- A roommate is great for splitting the bills. From utilities and internet to food and household items, having a roommate means you can split more bills down the middle instead of having to pay in full. That means you’ll have even more cash.
- A roommate could cure Friday night boredom. That’s not a financial win, but it’s definitely a score if you become friends.
- Collecting rent could be difficult or awkward. You’ll need to set tight restrictions on how and when rent will be paid. (We’ll go more in-depth on how to avoid this in Step 6).
- There’s always the possibility of a bad roommate. Living with a person you don’t get along with would be miserable.
- Owning a home that someone else shares with you can be tough. If your roommate doesn’t share your standards of cleanliness, you might become resentful. You may want to consider a household chores chart or include cleanliness standards in the lease agreement.
Situation #2: Renting a House That Won’t Sell
Maybe you had to move for a job, family or other circumstance beyond your control. Maybe your house has been on the market longer than you anticipated, and you’re starting to wonder if renting out your house is better than selling it.
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- It can mean more money in the bank. Since the home is already paid for, collecting rent is a nice bonus.
- It can mean less stress. You don’t have to wait for the right offer or worry about settling for less.
- There’s potential for more equity. If you’re able to rent out your house for a few years, you’ll build more equity as home values rise. The more equity you have, the higher your profit when you decide to sell your home.
- The minute you rent out your house, it becomes an investment property. There are state-specific rules for what kind of insurance you need to have and what needs to be included in the lease agreements. Plus, you’re a landlord now, which is a big commitment.
- You’ll run the risk of tenants trashing the place. Becoming a long-distance landlord comes with challenges. You’ll likely need to invest in a property manager to check up on the house for you and make sure rules are being followed.
- You’ll delay selling your house. If your intent is to sell, renting out your house will interfere with your goal.
Situation #3: Renting an Inherited Home
Losing a parent isn’t easy. The last thing you want to do is make the wrong decision about what to do with the house they left you. After all, houses come with memories and emotional ties. If the thought of selling your parents’ house is too much, renting it out could be an option.
But first, you’ll need to understand the many tax implications that come with inherited property, such as estate taxes, inheritance taxes, capital gains and property taxes. Everyone’s situation is different, so it’s wise to check with a tax professional to understand your obligation.
- You can keep the house that reminds you of your parents. It’s a little easier to let other people live in your parents’ home if you’re still in charge of the place.
- The house could be extra income. An ongoing monthly rent check would be a great way to build savings, pay off debt, or invest for retirement.
- You get to dip your toe into real estate investing. You’ll get to experience what it’s like to be a landlord and see if it’s your cup of tea.
- Deciding who will maintain the property can be difficult. Will you hire a property manager or maintain the property yourself? If your inheritance is split with siblings, you’ll need to decide on roles and responsibilities.
- There are taxes (and more taxes). Again, check with a tax pro to understand your tax obligation based on your specific situation.
- Ongoing upkeep and maintenance could be a chore. Being a landlord is a big commitment. If something in the house needs fixing, it’s your responsibility.
Step 2: Set Your Budget
If you’ve weighed all the pros and cons and the scales are tipping toward renting out your home, it’s time to make a financial plan—aka a budget.
You’re likely not wanting to rent out your home just for fun. You want to make money! But as we’ve said, being a landlord is hard work, and there are expenses you’ll need to plan for before you can turn a profit.
Here are some things you’ll need to include in your home expense budget:
- The mortgage. Even if you’re planning to have tenants cover the monthly mortgage payments with rent, you still need to include it in your property budget. There may be months in between tenants when you’ll be responsible for the bill. And don’t forget about the interest!
- Property taxes. Some mortgage companies will include your property tax in the monthly payment, but that’s not always the case.
- Insurance. Homeowners insurance is a must, but your location will determine if you need other types, like flood or earthquake insurance.
- Repairs and maintenance. If you think your tenants will never call you to fix something, you’re living in dreamland. Set aside an emergency fund for when the dishwasher breaks or a water pipe bursts.
- Upgrades and cleaning. This will come into play especially in between tenants. Set some money aside for home upgrades and deep cleaning—inside and out. Expect to pay for these things at least every few years.
- Desired rent. In a perfect world, the rent you charge will be higher than all your expenses so you can turn a profit. But the world isn’t perfect, and you can’t just pick a number and go with it. Look at similar-sized homes or rooms for rent in your area to see what’s reasonable. If you need more rent, see what sort of amenities or “freebies” you can offer to potential tenants to make your space look more attractive.
Step 3: Do Research on Rentals in Your Area
It doesn’t matter if it’s a spare room, a garage apartment or an entire house—if you’re collecting rent on a property you own, you’re a landlord. And there’s a lot more to that job than just pocketing the rent.
Before you even think about listing your space on the internet, you need to brush up on landlord tenant laws. Each state has different rules for what you need to include in a listing, how to collect a security deposit, what terms are required in the rental agreement . . . you get the idea.
There are also federal laws about housing safety and anti-discrimination you need to follow. Ignoring the laws can lead to a lawsuit, so be smart and learn your stuff before you rent out your house.
Step 4: Talk to Your Insurance Agent
This may seem like a no-brainer, but keep your insurance agent in the loop about your rental plans. Even if you’re just planning to rent out a room in your already insured house, you may need to up your liability coverage or require that your new roommate get rental insurance.
Having a trusted, independent insurance agent will make it easier to successfully rent out your house. Our Endorsed Local Providers (ELPs) know the insurance market inside and out and will help you get the right amount of coverage at a great price. Find your independent insurance agent.
Step 5: Make a Property Management Plan
A pipe is leaking. A tenant loses their key and is locked out of the house at 2 a.m. A door is falling off the hinges. A mouse is running rampant through the pantry. Who are the tenants going to call when these things happen? You—unless you have a plan in place.
Maybe you want to be the first call. But if you’re managing a property from out of town, you’re probably going to want someone else to be the first line of defense between your tenant and that pesky mouse. If you’re in a situation where you’re not able to get to the house easily, you may want to hire a property manager to field calls and check on your rental when necessary. But keep in mind that hiring a property manager can be pricey and will minimize your profits. Weigh the benefits and see if that’s right for you.
If you’re renting a room in your house or you’re okay with being the property manager, it’s still a good idea to make a list of reliable experts to call when these things happen—plumbers, exterminators, handymen and so on. Reach out to them and build a relationship before you get any renters. Chances are, you’re going to need one of them at some point. Unless you happen to be an expert in plumbing, carpentry and pest control. If that’s the case, write yourself down for all of the above and move on to Step 6!
Step 6: Write Up a Rental Lease
A quick web search for “rental lease” will pull up millions of free templates for you to use to write up an agreement. Looking at the examples is helpful to decide what you will and won’t let slide as a landlord.
For example, can your tenants have pets? Can they drill holes in the ceiling for their plant hangers? Can they have guests stay for long periods of time? Can they break their lease early without paying extra?
Free templates can be helpful, but they’re only a start. You’ll need to revisit all of the rules you learned in Step 3 and make sure your lease includes all of the necessary wording to follow state and federal laws. The lease should also include the property’s address, a list of everyone who will be living in the space, when the agreement will begin and end, and the cost of rent and security deposit.
Lastly, it’s important to have a lawyer involved here. A lease is a legal contract and can have legal consequences. And you need to know how to rent out a house in a legal way.
Step 7: Find and Screen Potential Tenants
Once your lawyer gives the thumbs-up on your lease, all that’s left is to find someone to sign the dotted lines. Unfortunately, this can often be the hardest part.
Just like you have a property management plan (see Step 5), you’ll want to have a property marketing plan. No, this doesn’t mean you have to hire some fancy advertising or real estate company. But you do need to plan how to get the word out about your home and how to make it look attractive to potential renters. Are you going to list it on Zillow or Craigslist? Or are you going to hire a property manager or real estate agent to take care of finding renters for you? Just remember, they won’t be working for free—you’ll have to budget them in.
The question is, how do you attract quality tenants? Post a quality listing! Your rental listing should include high-quality photos and a well-written description of everything your place has to offer—and what it doesn’t. If your property doesn’t allow pets, list that. If no smoking is allowed on the property, list that. Otherwise, you’re going to waste your time vetting applicants who wouldn’t agree to the rules of your lease.
Your listing also needs clear contact information for potential renters to set up showings and reach out with any questions. If you’re handling the process yourself, set aside time in your schedule to take these phone calls and emails and give tours.
It’s a good idea to have online applications and leases handy as soon as you list your property. That way, you can start the screening process as soon as you have an interested tenant. Most landlords charge an application fee to cover the cost of a background check and other expenses. You should also have a lawyer give your application a look before you have anyone fill it out, because it’s a legal document. The application needs to have a permission form that gives you access to the applicant’s personal information, including:
- Name and date of birth for all tenants
- Social Security numbers for all adult tenants
- Proof of income
- Emergency contact information
Now, we all like to think the best of people, but you’ve got to verify all this stuff. Call their employer. Call their last landlord. Run a background check and make sure there’s not a warrant out for their arrest. You don’t want to risk accepting a jerk tenant who’s going to trash your space and skip out on paying rent.
Step 8: Choose a Tenant
It’s not as simple as picking the nice couple that brought you cookies when they came to tour the place. You should process applications on a first-come, first-served basis to avoid breaking any anti-discrimination laws. It’s a good idea to check back in with your lawyer or real estate agent for the decision-making process if you have multiple qualified applicants to choose from.
Once you’ve accepted a tenant and they’ve accepted your property, it’s time to sign the lease. Congratulations! You’ve officially rented out your home.
Step 9: Document the Space Being Rented
Don’t skip out on Step 9—it’s very important. Before any tenants move into your home, you need to document the space. Take photos of everything. Make note of any cracks in the walls or scratches in the wood. Before your tenant moves in, do a walk-through with them and have them document the space for themselves. You both need to agree on the current condition of the space and write down anything that might be considered damaged, even if it’s minor.
By law, you owe your renter their full security deposit back. (Side note: Don’t spend it!) Some state laws even require you keep a tenant security deposit in a separate bank account.2 The only reason you wouldn’t refund a security deposit is if you can prove your tenant caused damage to the space. Taking before photos and notes will be helpful if the tenant tries to argue that the damage was already there.
Bonus Step: Don’t Do It Alone
The bottom line is this: Renting out a house is not easy and requires a lot of thought. That’s why it’s smart to partner with a pro who can help you through the process.
If you’re looking for a local real estate agent who will help you every step of the way in renting your house, reach out to one of our Endorsed Local Providers (ELPs). We only endorse the top agents in your area, so you can trust that your ELP will help you figure out a renting process that’s best for you and your budget.