Key takeaways:
- Before deciding to rent out your house, calculate potential rental income, expenses, and maintenance costs to ensure it is financially worthwhile.
- Review mortgage restrictions, local landlord-tenant laws, insurance requirements, and property conditions before listing your house for rent.
- To protect your investment, utilize consistent tenant screening, a clear lease agreement, and organized management practices.
Renting out your house can be a valuable source of additional income while allowing you to retain ownership of your property.
For homeowners with multiple properties or those not ready to sell, renting out all or part of a home can be an attractive alternative. With more home sellers than buyers in today’s market and renting remaining more affordable than buying for many households, keeping a property as a rental may be a viable option.
However, becoming a landlord entails financial, legal, and ongoing management responsibilities. Before listing your home for rent, you must evaluate potential rental income and expenses, understand local rental regulations, prepare the property for tenants, and establish a screening and leasing process.
Understanding how to rent out your house can help you determine if it is the right financial and practical decision for you.
1. Check if you can legally rent out your house
Before making any major plans, confirm that your mortgage, HOA rules, zoning regulations, and local laws permit you to rent out your property. Key requirements to consider include:
- Mortgage terms and lender requirements: Some mortgages have owner-occupancy requirements or restrictions on converting a primary residence into a rental property.
- Zoning and permit requirements: Local regulations may mandate rental licenses, property registration, inspections, or compliance with occupancy limits.
- Fair Housing laws: The Fair Housing Act prohibits housing discrimination based on protected characteristics, with additional protections in state and local laws.
- Landlord-tenant laws: Familiarize yourself with requirements for property conditions, security deposits, notices, tenant privacy, and tenant rights.
- HOA rules: Your homeowners association may have specific rules for rental properties or prohibit rentals entirely.
“If the property is within an HOA, homeowners should check their governing documents for rental restrictions, leasing requirements, tenant registration, or other rules before renting,” advises the team at MicroHOA. “You may need to provide information about the tenant and lease, or even obtain approval and pay administrative costs to the HOA. Most covenants hold the owner responsible for rule infractions and maintenance regardless of the tenant, so ensure the tenants understand the community rules they must follow.”
“Violating HOA or condo association rules results in penalties for you, not your tenant,” adds Doug McLain, owner of Dynamite Management. “You are also responsible for assessments or any damage caused by your tenant to the common areas. A quick call to your association’s manager before signing a lease can prevent an expensive surprise.”
2. Determine if renting out your house is the right decision
Renting out your house can generate income and allow you to maintain ownership, but it also involves financial responsibilities and ongoing work. This consideration is crucial when weighing between selling and renting your house, a common dilemma in today’s housing market.
Weigh the pros and cons of renting out your house
Potential benefits include monthly rental income, long-term property appreciation, and the option to sell later. However, landlords also face vacancies, unexpected repairs, property damage, and management responsibilities.
Choose a rental strategy
“Select your rental strategy before preparing your home,” advises the team at Evolve, a vacation rental management company. “Owners often default to long-term renting without considering if it offers the best return on their investment. In many markets, short- and mid-term stays can yield higher returns than traditional 12-month leases, while also providing flexibility for personal use. However, these rentals require a hospitality business approach, which companies like Evolve can help you confidently manage.”
The optimal rental arrangement depends on your financial objectives, property, and local regulations.
- Long-term: Typically leased for six to twelve months or longer.
- Short-term: Often rented for days or weeks, like a vacation rental, subject to additional local restrictions.
- Mid-term: Commonly rented for one to several months.
- Room rental: Involves renting individual rooms while sharing certain spaces.
Questions to ask before becoming a landlord
Before proceeding, consider if you can afford unexpected expenses, manage tenant requests, and maintain the property. Also, assess if you have the time and resources to handle landlord responsibilities.
“Renting out your home is not a side project; it is running a business with someone else living in your most valuable asset,” states Adam Willis, past-president of NARPM Utah and CEO of Nestwell Property Management in West Jordan. “Successful owners treat it that way from day one with clear systems, consistent standards, and professional guidance. Verify what you are permitted to do and be honest about your time and temperament. Are you willing to handle a no-heat call at 2 a.m. in January? Can you enforce a lease with someone you may personally like? If not, consider working with a professional property manager.”
3. Develop a financial plan and set the rent
Setting a profitable rental price begins with understanding your expenses, evaluating local demand, and preparing for unforeseen costs.
Estimate rental income and ownership expenses
Calculate expected monthly rent and compare it with expenses like:
- Mortgage payments, property taxes, and insurance
- Maintenance, repairs, and utilities
- HOA fees and property management costs
- Potential licensing fees and other applicable expenses
Rental income differs from profit, so consider all ownership costs before making a decision.
Plan for vacancies, repairs, and reserves
“First-time landlords often overestimate rental income and underestimate the time needed to start earning from rent payments,” warns Hal Wilkerson, principal broker at Hawaii Coastal Property Management in Honolulu. “Renting out your house incurs real costs. While it may seem simple to say ‘Rent is $3,000 and my mortgage is $2,700, I should be fine!’ the reality is, especially in today’s competitive rental market, some areas experience rent compression, resulting in a property sitting longer than expected or necessitating a rent reduction to attract a tenant.”
Even desirable rental properties can remain vacant between tenants. Allocate funds for missed rent, emergency repairs, and major replacements like roofing or HVAC systems.
Understand the 50% rule
The 50% rule is a general guideline suggesting setting aside about half of your rental income for operating expenses, such as maintenance, insurance, and property taxes, excluding mortgage payments. While it can be a useful starting point for cost estimates, actual expenses will depend on your property, location, and maintenance requirements.
Compare similar rental properties
Research comparable rentals based on location, square footage, bedrooms, bathrooms, amenities, and condition. Examining homes for rent on Redfin can help you grasp local asking prices.
Check rent control and rent increase rules
Depending on your property’s location, there may be regulations on how much rent you can charge, when you can increase it, and the notice required for tenants. Ensure you review your state and local rental laws before setting your price or making any adjustments.
4. Determine who will manage the property
One of the next considerations is whether to manage the rental yourself or enlist a property manager to assist. The best choice depends on your availability, desired involvement, and financial situation.
When self-management may be suitable
Self-management may be appropriate if you reside nearby, can respond to maintenance requests, and feel comfortable handling tenant communications and administrative tasks.
“Owning and managing single-family and multi-family homes can be a great way to build personal wealth,” shares Tony Jacobsen, president of Landlords of Iowa. “However, it is crucial to educate yourself on state landlord-tenant laws, local regulations, and fair housing guidelines, as they vary by location. Joining a local landlord or property manager association is a great starting point to gain this knowledge.”
When to consider hiring a property manager
If you live far from your rental, own multiple properties, or lack the time to manage everything yourself, hiring a property manager may be worth considering. They can assist with tasks like tenant screening, rent collection, repairs coordination, and lease renewals. Keep in mind that services and fees vary, so comparing your options is essential to find the best fit.
5. Obtain rental property insurance
Renting out your home may change your insurance needs, so review your coverage before tenants move in. Consider different types of insurance:
- Landlord insurance vs. homeowners insurance: Standard homeowners insurance may not adequately cover a tenant-occupied property. Landlord insurance may offer protection for the home, specific liability claims, and qualifying lost rental income, depending on the policy.
- Landlord insurance vs. renters insurance: Landlord insurance generally safeguards the property owner’s interests, while renters insurance, paid by the tenant, typically covers the tenants’ personal belongings and provides certain liability coverage.
6. Prepare your house for rent
Getting your house ready for tenants involves addressing necessary repairs, safety concerns, and ensuring the property is clean and functional.
Clean, repair, and maintain the property
Before listing, consider:
- Deep-cleaning floors, kitchens, bathrooms, and appliances
- Fixing leaks, damaged fixtures, and malfunctioning systems
- Checking plumbing, electrical, heating, and cooling systems
- Maintaining landscaping and outdoor areas
Complete safety and security checks
Ensure that required smoke and carbon monoxide alarms, locks, handrails, and other safety features meet relevant codes. Address known hazards and perform any necessary inspections.
Decide on furnished or unfurnished rentals
Furnished rentals may attract tenants seeking flexible or short-term accommodations, while unfurnished properties may suit longer-term arrangements. Consider local demand, furnishing costs, and maintenance responsibilities.
7. Draft a lease agreement
A written lease establishes expectations between the landlord and tenant, outlining payment terms, responsibilities, and occupancy rules.
Include essential lease terms
A rental agreement should typically cover:
- Names of the parties and property address
- Lease duration and monthly rent
- Payment deadlines and permitted fees
- Security deposit terms
- Maintenance and repair responsibilities
- Renewal, termination, and notice provisions
Address deposits, pets, utilities, maintenance, and HOA rules
Clearly outline who pays utilities, handles routine maintenance, and complies with applicable HOA regulations. Ensure that pet rent and security deposits adhere to relevant laws, including accommodation requirements for assistance animals.
Know when to have the lease reviewed
Consider consulting a local attorney to ensure your lease complies with landlord-tenant laws, required disclosures, and restrictions on lease provisions