9 Steps to Follow When Renting Out Your Home
Welcome to the world of being a real estate investor. Owning and managing rental properties is equal parts exciting and stress-inducing.
If you know how to rent out a house, attract tenants and manage your rental homes, it can be a great source of extra income and personal satisfaction, and that's where we come in. We've identified the main sources of concern for most first-time landlords and tapped seasoned experts for advice on how to feel confident as a property manager.
Consider the following guide for your property management plan. It contains step-by-step instructions aimed at helping both first-time and experienced single-family home property owners get the most rewarding experience out of this considerable challenge. Here is everything you need to know about renting out a house or investment property.
How to rent out a house as a new property manager
Even the most professional property manager will encounter unexpected problems when renting out a house, but there are certain items — like collecting rent and screening tenants — that will always remain part of the property management process. So, we've outlined the nine steps you must always keep in mind when managing rental properties.
1. Understand and follow state and local laws
You have the right as a landlord to thoroughly vet a prospective tenant before you accept him or her but keep in mind that your screening process must comply with state and local laws. Here are a few laws to keep in mind when screening tenants.
- Fair Housing Act — Federal laws like the Fair Housing Act prohibit discrimination against potential renters on the basis of race, color, religion, national origin, disability, sex, age or familial status (e.g., women who are pregnant, families with small children or teenagers, etc.). Property managers must treat protected classes the same as any other potential renter when considering their application.
- Fair Credit Reporting Act (FCRA) — The Fair Credit Reporting Act states that you must notify applicants in writing and get their permission before running a credit or background check on them. If you decide to reject an applicant based on the findings of a credit report or background check, you must notify the applicant of your intent in writing, furnish them a copy of the report, and give them a reasonable amount of time (a week suffices) to respond with a correction or explanation of the report's findings.
- "Fair Chance" laws — This isn't a federal law, but a growing number of states and cities have enacted these measures to prevent discrimination against persons with prison records. Specifics vary by jurisdiction, but most of these laws forbid property managers from asking about past criminal convictions or incarceration on housing applications. If a background check turns up a criminal history, it's fair game to discuss it then and, if appropriate, to use it as grounds for turning down an application, though.
Understanding and complying with landlord-tenant laws is essential for a property manager. It may be worthwhile to consult with a real estate attorney if you're unsure of the dos and don'ts of managing local properties.
2. Draft a comprehensive lease agreement
Regardless of whom you rent to, it's essential to have a standardized lease outlined that details the rental agreement. The lease agreement is a legally binding document between you and the tenant.
Within the lease, it's standard to include things like the rental rate and due date, the security deposit fee, additional expenses owed and the rental duration, an agreement on how the tenant will be paying rent (Venmo, a check, cash, etc.), among other things.
You want the lease to be specific and outline how you'll handle scenarios that could play out. Here are a few examples.
- Handling late payments — In writing, outline if there is a surcharge for late payments or what will happen if the rent is over a week late. Discuss what triggers an action to remove a tenant for failing to pay the rent. However, this isn't entirely your decision. Local housing regulations likely dictate a timeline and procedure for removing problem tenants; the lease can refer to the appropriate process.
- Outlining the security deposit — Security deposits are standard for lease agreements but it's smart to outline what they cover. Whitney Foster, an Atlanta-based property manager who has been managing and renting out homes and apartments since 1989, recommends erring on the high side when setting a security deposit. It should be at least one month's rent (and you should not give the tenant the option of using it to pay their last month's rent, because “that doesn't protect you" in case you discover unsuspected damage after the tenants vacate). If you allow pets, you should specify an additional deposit. “Even small, gentle dogs and cats can do significant damage," he warns.
- Accepting rent payments — You should be clear about how you'll accept payment (fund transfers via electronic services? Paper checks? Cash in an envelope?) and how you'll determine if a payment arrived on time. Is an electronic transfer OK up to 11:59 p.m. on the due date? Does a paper check need to be postmarked on or before the due date? Will you accept in-person drop-offs at your home or office?
- Defining a pet policy — Determine if pets are allowed or not and then spell out that the tenant is responsible for any damage caused by their pet, including scratching, chewing and staining of floors or carpets. You may also want to include a requirement about picking up pet waste in the yard, especially if it's fenced in and a pet can have a free run.
- Renters insurance or homeowners insurance requirements — Will you require the prospective tenant to purchase insurance? Outline this in the lease.
Have your lawyer review the lease to make sure you haven't missed anything (or inadvertently contradicted any housing law or landlord-tenant law), and give the tenant a copy to review (and run by their lawyer, if they care to). Once it's time to sign, each of you should sign and keep a copy for future reference. There's no need to notarize a lease, but you should keep your copy in a secure place.
3. Set a competitive rental rate for your rental property
To attract tenants, you need to set the right rent price. It needs to be comparable to the rental rate of other local properties but also high enough that it generates extra money for you.
As a property manager, you'll need to do your research to determine what is a fair rental price. You can conduct a Google search to scope out the price of similar properties or use tools like Apartment Guide and Rent. to figure out the going rates in various neighborhoods.
Alternatively, there are other sites that provide a free rent price estimator. We recommend our rent estimator to show you how much you can rent your house for. It's very simple to use.
Once you understand the property values of places that are similar to yours, you can set your price and start your rental listing.
4. Craft an irresistible property listing
Once you know what you're charging for rent, you're ready to get to the heart of marketing the property online: putting together a listing that will entice tenants into renting out your house. Remember, it's not just a room — it's their future home.
The key to a great listing is communicating the unique advantages of your property in a way that attracts the right kind of tenant. Namely, a tenant who will be dependable and take care of your property as if it were their own.
When putting together a listing, the goal is to try to instill a sense of what it's like to live in the house. Capture what makes the property a home. You want to enable tenants to picture themselves living there comfortably, and ideally for a long time to come.
5. Set up for aesthetic appeal and take great photos of the real estate
When staging the property for photos, open houses and walkthroughs, Foster recommends removing personal items such as family photos that mark the place as someone else's, but he disagrees with experts who suggest emptying the space out altogether.
Leaving the house furnished in a simple, unassuming style “allows people to envision themselves living in the property," he said. It can get them thinking about how they and their family could make it their own. A furnished living room that isn't cluttered with personal items.
Once you've spiffed the place up a bit, it's time to take some photos. If you can afford to have a professional photographer come in and take photos with high-quality lighting, the investment could be worth it. A strong set of shots could serve several generations of tenants — as long as you don't make major changes to the house.
If you're taking pictures yourself, a quality cellphone camera can do the trick, but a camera with a zoom lens will give you much greater flexibility. And either way, a tripod can improve your results considerably.
In general, you want your listing to outline everything that comes with the rental property and show the unique features of the rental property with high-quality images.
6. Know your ideal tenant and target them
Most landlords want to find a great tenant to successfully rent their place. A Rentals.com survey found that most seekers of single-family rental properties are married or in domestic partnerships (62 percent), have children (61 percent) and have pets (54 percent).
Here are a few things to point out about your rental home.
- Local schools — Parents of school-aged children will want to know what schools are nearby and how they are ranked. Include this information upfront in your listing.
- Housing safety statistics — Every renter cares about their safety so it's smart to include some information about the state of safety in your neighborhood.
- Parks and playgrounds — Parents, pet-owners and individuals alike usually enjoy the beauty of nature so highlight what outdoor areas are nearby.
- Restaurants and bars — In your listing, it can be smart to put a few bullet points about the best food and bars in your area to appeal to the foodie.
- Neighborhood highlights — Neighborhoods all have their own personality, so list a few unique features about yours that someone may not otherwise know about. This can be the selling point for prospective renters.
- Garage and extra storage space — One of the perks of renting a home is the additional space compared to an apartment. List or show through pictures the garage and storage space available.
- Property access to the garden and yard features — If the renter will have access to a garden or backyard, be sure to include this in the listing. People want to see all of the features, exterior features included, that come with your rental property.
Knowing the demographics of your prospective tenants can help you target them specifically.
7. List your property online
Now you're ready to advertise your property, or multiple properties, and start the screening process. You can share your listing on places like Facebook Marketplace, the Neighborhood app, old-fashioned "for rent" signs or by word-of-mouth.
You can also consider using tools like Rentals.com which has a simple, fill-in-the-blank process to help you list your property with ease.
As soon as your ad is posted, you'll likely start getting applicants who are interested in your listing.
8. Screen potential tenants
Once you've identified potential tenants, “it's important to screen them carefully," Foster says. Rentals.com offers landlords free online applications and tenant screening reports to make sure future tenants are qualified.
Landlords have access to any of the following at no cost to them: online rental applications, full credit reports and scores, criminal background checks, eviction checks and identity verification options.
When viewing completed credit reports from applicants, look for indications of account defaults, car repossessions or foreclosures. A few late or missed payments over the span of five or more years probably do not cause worry unless they've all piled up recently. And because bankruptcies can stay on credit reports for up to 10 years, one that's five or more years old doesn't have to be a deal breaker, as long as employment and other financial indicators look OK.
Upon receiving the completed criminal background check, think twice about applicants with recent convictions or incarceration related to financial malfeasance or substance abuse, or a history of sexual offenses.
At the end of the day, you need to decide what is a deal breaker for you. After all, you'll be the one dealing with the repercussions of a bad tenant should things go awry. You could also consider consulting with a property management company as a resource here, too.
9. Reflect on the experience and adapt
Attracting and identifying the right new tenant when renting out your home may be a challenging and time-consuming experience, but it's a necessary first step on your new journey as a landlord. You should expect to learn as you go.
You may do a few things differently the next time you list the property, but if you follow the steps for renting out your home outlined here, there's a good chance you'll find a tenant who'll feel right at home.
Become your own property management company by renting out your house
When managing one or two rental properties, you probably don't need to work with any professional management companies. You yourself are the property management company.
If you understand the laws set by the local housing authority, price your rental competitively and have a solid lease in place, you'll be sure to attract the perfect tenant who will make your job easy.
Follow our nine steps outlined above and you'll soon be collecting rent and enjoying the perks of being a landlord.
