Planning to Rent

When planning to rent your home, there are many factors to consider that will affect your your decision to rent. These include financial, liability, and rentability.

Financial

Financial consideration is critical, the largest likely recurring expenses will be mortgage, insurance, property taxes, and HOA fees. With the possible exception of mortgage, insurance, property taxes, and HOA fees tend to increase over time. Usually on an annual basis, but sometimes governing bodies like HOA's will require special assessments that can be substantial.

Recently, an HOA I work with required all homes in the community to upgrade electrical panels for safety reasons as assessed by the insurance provider. As a result, the HOA's insurance provider dropped coverage, which required the HOA to buy insurance from a secondary market insurer at a substantially increased cost. That in turn increased the deductable and triggered a special assessment. And the knock on effect was increased HOA fees, special assessment fee, replacement cost for the panel, and increased landlord insurance costs.

Here is a reasonable list of recurring expenses you will encounter with a rental property:

• Mortgage payments (if applicable)

• Property taxes

• Insurance (must be landlord insurance, not home owners insurance)

• HOA fees (if applicable)

• Maintenance and repair costs

• Utilities (if you, the landlord, cover any)

• Property management fees (if applicable, nudge, nudge, wink, wink ;)

• Vacancy costs (allow for some periods where the property may be vacant), and

• Other fees such as pool services or gardening services.

So how do you prepare yourself for unexpected events like a water heater that fails causing minor flooding in the garage? As a landlord you mitigate risk by maintaining a reserve. This is not the security deposit! It is money set aside each month for the express purpose of handling issues absolutely will arise. It covers routine maintenance to major issues like an HVAC replacement. How much to set aside depends on many factors from the age of the property, amenities offered , location of property, to the type of property.

Liability

When renting a residential home, you will face several legal risks including tenant disputes (evictions), fair housing violations, and health & safety liability. Evictions must be handled in strict compliance with state and local laws. If proper eviction procedures, such as giving adequate notice or having a valid reason for eviction, are not followed can result in being sued for wrongful eviction that will incur legal costs and delay regaining control of the property. Evicition can be expensive already, so having good legal council before hand is key.

Solid tenant screening techniques are critical to renting your property and being discerning, while not deviating from Fair Housing best practices is key. Engage with prospective tenants to get a sense of who they are and align their story with the actual information they provide like credit reports, financial records, and personal and professional references. Do not rush, do your due diligence!

Fair Housing violations is another area where you can get tripped up. Landlords must comply with federal, state, and local fair housing laws, which prohibit discrimination based on race, religion, gender, family status, disability, and other protected characteristics. Failure to follow these laws can result in fines, lawsuits, and potential damage to the landlord's reputation. This includes any discussions you might have by email, phone, or in person should be conducted in a way as to ensure you are not running afoul of Fair Housing.

As a Landlord, you are legally responsible for the Health and Safety of your tenants. Liability Meaning, you are legally required to ensure the property meets health and safety standards. This includes maintaining habitability by addressing repairs, keeping utilities functional, and ensuring that the property is free of hazards like mold, lead paint, or faulty wiring. If a tenant is injured due to neglected maintenance, the landlord could face lawsuits and liability claims.

Rentability

You will need to evaluate the overall condition of the property and whether it’s ready for tenants or requires significant upgrades. You may need to fix or replace appliances, repaint, adding safety devices like smoke and carbonmonoxide detectors, or other updates to make the home tenant-ready. As part of that consider ongoing maintenance including pool & spa, landscaping, and be prepared for emergency fixes.

Also, think about what amenities are including If the home is furnished, will include appliances like a refrigerator, washer & dryer, or HVAC. You will need to factor in potential wear-and-tear of amenities and whether the rental price should reflect that added conveniences and amenities. Decide whether utilities such as water, gas, or electricity will be covered by the tenant, or if you plan to include them as part of the rent. This decision can impact the expenses and the appeal of the property to potential renters.

Lastly whether the property accepts pets, the number and types of pets, and what pet breeds to accept will need consideration. Keeping in mind pets can damage the property, but pet friendly rentals are in higher demand and commands higher rents.

There quite a bit, which can seem quite overwhelming, but we can help assess whether renting is the right financial move for you. With tailored advice on rental income potential and management solutions, we provide the insight needed to make an informed decision.

Initial consultation is free with no high pressure sales. Your success is our success and that means providing an honest and good faith assessment of when to rent and when not too.

Disclaimer: The information provided in this blog is for general informational purposes only and does not constitute legal advice. I am not an attorney or legal professional. While I strive to ensure accuracy, the content may not reflect the most current legal developments, and it is not a substitute for legal counsel. You should consult a qualified attorney for advice regarding your specific situation. Use of this information does not create any attorney-client relationship and does not offer any guarantees, assurances, or protections from legal liability.