Because of continuing foreclosures and the difficulty would-be homebuyers have obtaining mortgages, 15 percent of U.S. homes were vacant in the fourth quarter of 2008, according to the Census Bureau. If you own one or more of them, it might be a good time to consider making extra money by jumping into the home rental business.
But if you're new to the rental game, make sure you understand the rules so you can reap the rewards.
Running a successful rental business is not difficult, but "sometimes people underestimate what's required," says Robert S. Griswold, author of "Property Management Kit for Dummies." Here are some things to consider before opening the doors to your first tenant.
- Know what to expect
- Learn Fair Housing laws
- Consider the tax equation
- Find maintenance partners
- Consider a management company
Know What to Expect: Every would-be landlord likes the idea of extra money coming in to cover mortgages, but don't forget about other costs associated with the rental business. As a landlord, you'll be expected to make repairs that you might have overlooked if you were living in the home, such as a door hanging off of its hinges or miniblinds with broken slats. You'll also need to save money to cover the mortgage when you're between tenants.
Landlords also need to know the going rates of rents in the neighborhood and keep track of them as they rise so you can charge your tenants accordingly. Many owners fail to do that, Griswold says. Then they realize they're charging tenants far less than the going rate and anger them by suddenly raising the rent. "You're better off giving them small increases every year," Griswold says.
Landlords also need to factor in the costs associated with getting the home ready each time you're preparing it for a new tenant, such as advertising, painting, making minor repairs and replacing the carpets. Finally, you'll need to set aside money for emergencies, such as the need to consult an attorney if a tenant breaks the lease. While most of these fees are potential tax deductions as legitimate business expenses, you'll need to have the money available when the costs come up so that you can keep the business running. Organizations such as the National Association of Independent Landlords are a starting place to get up to speed.
Learn Fair Housing laws: The Office of Fair Housing and Equal Opportunity, which falls under the U.S. Department of Housing and Urban Development, is responsible for making sure that all Americans have equal access to housing. As a landlord, if you discriminate against potential tenants or treat some tenants differently from others, you can be charged with violating the Fair Housing Act.
Not only could you get in trouble for failing to rent to somebody based on race, color, national origin, religion, sex or family status, but you could also be in violation if you simply try to impart your views on your tenants. For example, "If you rent a property and two guys show up as a couple, you can't say, 'I don't think that's appropriate,'" says Griswold. "That's none of your business."
Housing providers are also responsible for making some accommodations for people with disabilities. While the Office of Fair Housing says homeowners don't have to do anything that would cause undue financial burden, you may have to allow tenants to make certain modifications at their expense, such as being able to install a ramp.