When the neighborhood you live in is gentrifying, demand for rental space can increase rapidly. A wise homeowner can turn their home into an income property to cash in on this new demand. There are several ways to make your home into a rental property. One option is to hire a property management company. Another option is to take out a second mortgage.
Prepare your home for a showing.
One of the most important things you can do to get your rental home ready for a showing is to make it as appealing as possible. Renters want to live in a comfortable space that meets their needs. In winter, that means turning on the heater and air conditioning. And if you have a dark, dingy home, that can put a potential buyer off. To make your rental home appear welcoming, turn on the lights.
You can hire a professional stager to stage the home, but you’ll still need to do a few things independently. First, it’s essential to clean and organize the house. Make sure to have it cleaned, swept, and polished. This will make it easier for prospective tenants to visualize themselves living in the space. You can also hire a real estate photographer to take photos of your rental property, making the house look more appealing to potential renters.
Another essential thing to do before showing your rental property is to make sure that everything is in working order. Water pressure, toilets, and drainage are all crucial factors to consider. If any of these are problematic, call a plumber to fix them. Appliances, lights, and windows should also be checked, and locks should be secured.
The outside of your home is the first thing prospective renters will see. Keep the grass and bushes trimmed and pulled. During warmer months, plant some colorful flowers. Maintain your sprinkler system and clean any weeds in the yard. Also, keep your windows clean and polish the woodwork.
If you consider turning your home into a rental property, you should consider how much time you can dedicate to the process. It’s also important to consider whether you need to refinance your mortgage. Most primary residence mortgages offer lower interest rates than those for rental properties because the lender expects you to use the home as your primary residence.
Calculate rent and maintenance costs
Before turning your home into a rental property, it’s essential to figure out your costs. You’ll need to account for mortgage payments, insurance, property management, and taxes. And, of course, you will need to maintain the property to make it habitable and safe. On top of that, you’ll need to collect rent and deal with delinquent tenants.
Another cost to consider is capital expenditures, which are costs to make improvements or repairs to a rental property. These include things like replacing a roof or installing a new HVAC. Many real estate investors set aside a portion of their monthly rental income in a CapEx account to have money to make these types of improvements as necessary. For instance, if a single-family rental home makes $2,000 a month, you’ll need to set aside approximately $140 a month for capital expenditures.
Other costs to consider when determining your expenses include a management fee, gardening, and pest control. The prices can range from 6 percent to 8 percent of the rent. You should also factor in utilities in your expenses. The landlord can spend more on these expenses than a tenant, but they are more likely to conserve energy and money.
Once you have your costs figured out, you can then start determining how much rent you’ll need to earn to make your investment profitable. It would help if you also considered operating costs – typically about one percent of your income – to determine how much you’ll need to spend on upkeep and repairs.
Consider your time commitment carefully when determining how much money you’ll earn on your rental property. And make sure you have the necessary insurance and liability coverage. In addition, you should consider whether you’ll need to refinance your mortgage. Remember that mortgage rates for primary residences are typically lower than those for rental properties.
Hire a property manager
Before you hire a property manager to turn your home into a rental property, you should determine what you want from a property manager. You should also make a list of the specific things that you want your property manager to do. It is also helpful to get references and testimonials from current clients.
Some people prefer to manage their properties themselves, tiny ones. However, if you have an extensive rental portfolio, you should hire a property manager. Hiring a property manager may be worth your money if you want to maximize your rental income and avoid the hassles of handling tenants. Using a property manager can save you a lot of time and money, which is a huge bonus.
Property managers can take care of maintenance requests. They can handle minor issues internally and delegate significant issues to outside specialists. They can also help you avoid common problems such as raccoons. Besides, a property manager can help you find the right vendors for your property.
Hiring a property manager to turn a home into a rental is only for some landlords. While many landlords enjoy the challenge of finding tenants and keeping the property clean and safe, others prefer to outsource this task. They also like to concentrate on their investments. Hiring a property manager will relieve you of the stress and worry of managing your rental property. You will be able to enjoy more time with your family and business.
When you hire a property manager to turn a home into a rental, it is essential to communicate with them. If you need to know what to expect, you may end up with an empty house, which is expensive to keep. You should also be aware of the fees that a property manager charges for the job.
A property manager can help you manage your rental property by actively processing tenant applications. They can also help you adhere to the Fair Housing Act and streamline the leasing process. By managing tenants, property managers can help you get a better rental return and keep your tenants happy.
Determine if you need a second mortgage
Before obtaining a second mortgage, there are many factors to consider to turn your home into a rental property:
- Determine if you have enough equity in your first property to cover the loan.
- Assess your income and debt-to-income ratio. If you have a high debt-to-income percentage, you may find it challenging to obtain a second mortgage.
- If you intend to rent your new property, you must maintain it yourself.
You’ll need an appraisal to use your rental property for rental income. This will help the lender determine whether you’re eligible for the loan and give the tenant a good idea of how much they’re likely to pay. The lender will also want to see proof that you’re capable of covering the loan payments. You’ll need to demonstrate that you have enough savings to cover at least 2% of your total mortgage debt or a more significant amount if you have more than four properties.
The second step in determining if you need a second mortgage to convert your home into a rental property is to calculate how much you can afford to spend each month. After you’ve determined the amount you can comfortably pay each month, subtract the amount you’ll be paying on the second mortgage from your salary. Since you’ll be relying on rental income to pay the second mortgage, you’ll want to make sure you can afford it.
