There are many reasons why you should consider converting your home into an investment property.
Perhaps you are experiencing difficulty trying to sell your property. Maybe you have an extra home that you got as an inheritance and don’t wish to sell. Or, maybe you simply want to complement your income by being a landlord.
Whatever your reason, you will need to get everything right both physically and financially. In this blog, we’ll take you through 8 key points you’ll need to do to follow to make the conversion a success.
1. You will need to change your insurance policy.
A homeowner’s insurance policy isn’t enough for an investment property. Since you’ll be renting your property for an extended period, you’ll need to have a policy that insures you against any liability that can occur by having people on your property.
A landlord’s insurance policy is designed to protect both the property and your income. Basic insurance helps cover the building for structural damage, as well as minor injuries or accidents that happen on the property. When shopping for coverage, make sure to get quotes from a couple of providers and seek clarification on anything you don’t understand.
2. You will need to get a permit.
While requirements vary from one locality to another, a permit is almost always required when renting out a property. The permit serves to ensure that your property meets the basic safety, health and safety codes.
Usually, a local government inspector will inspect the property for things like air conditioning, heating, lighting, fire alarms and emergency exits.
3. You may need to make necessary upgrades.
The rental industry is a competitive one. To stand out, you need to make sure your property is appealing. Besides, making upgrades to the property will also help add value to it and may enable you to ask for a better rent.
Therefore, if your property looks like it has seen better days, make sure to have it professionally cleaned and freshly painted. Plus, replace anything that looks severely outdated. When executing these upgrades, though, make sure not to go overboard.
4. Know how much to ask for as rent.
Charging the right rent is the only way you’ll be able to maximize your ROI. If you overprice it, then you risk turning off prospective tenants. If you underprice it, you risk leaving money on the table.
When trying to price your rental, there are a couple of things you will need to consider. One important step is determining your home’s worth. While you could simply use online sources, like Zillow, it may be best to hire a home appraiser.
An experienced home appraiser will provide you with a better estimation of your property’s worth based on various parameters. Such parameters include the location, local home sale prices and the present condition of the home.
How much you charge tenants should be dependent on the market value of the property. Generally, the rent should fall anywhere between 0.8- and 1.1 percent of the value of the home. So, supposing your home is valued at $300,000, you should expect to charge anywhere between $2,400 and $3,300 every month.
Besides basing the rent on your home’s value, you’ll also need to carry out a comparative market analysis to know how much rent similar properties are going for. Craigslist and Trulia can help you in this regard.
5. Understand the Texas landlord-tenant laws.
Before you start advertising your property, make sure you first understand the statewide tenancy laws. One such law is the Fair Housing Law. Passed in 1968, the law makes it illegal for any housing provider to discriminate against a potential buyer or tenant based on several protected classes.
The protected classes are sex, race, familial status, disability, nationality, color and religion. You should also check whether your city has additional protected classes.
Another law to be cognizant of is the Texas security deposit law. Understanding its provision will help you be aware of how much to ask, how to store it and the conditions for its return. Requiring a security deposit will help cushion you against a negligent or careless tenant.
6. Know how to market your property and screen tenants.
Each day that your property sits vacant is money down the drain. Prospective tenants won’t know the existence of your property unless you make efforts to market it.
Listing your rental on top rental listing sites is a valuable marketing tactic. Such sites include Craigslist.org, Apartment.com and Rent.com. There are hundreds like these that you can take advantage of.
You may also want to ask your friends and family for help in regard to spreading the word about your property. Placing yard signs may also be helpful.
Once you start getting leads, you’ll need to have a screening process to help you avoid problem tenants. Screening tenants improves your chances of finding a tenant that will pay rent on time, care for the property like their own, report maintenance issues on time and renew their lease multiple times.
Ideally, your screening process should involve checking and verifying a prospective tenant’s income level and creditworthiness, as well as employment and rental status. Moreover, when screening tenants, make sure to apply it fairly and equally to all applicants. Asking tenants different questions, for example, qualifies as discrimination.
7. Set the rules.
Having a lease agreement in place helps highlight each party’s rights and responsibilities.
When crafting the agreement, make sure to consider things like your right of entry, cleanliness and garbage removal, yard maintenance, pets and limit on occupancy.
8. Decide whether to self-manage or hire a property manager.
If you have experience managing a rental property, you may consider managing it yourself. However, if you are just starting out, hiring a qualified and experienced property manager may be in your best interest.
A good property manager will help you with all your property management needs. From finding and screening tenants to collecting rent and maintaining the property, you won’t have anything to worry about.
Owning a rental property is a great way to diversify your investments and earn passive income. However, just like any other investment, make sure you understand what you’re getting into. OmniKey Realty has the skills, experience, knowledge and experience to help you in this regard.