Seven tips for renting out your home
A rental contract is only as good as the terms outlined in the document, so it’s important for a landlord to give serious thought to the terms and conditions that are included. A solid lease agreement will provide a clear statement of each party’s rights and obligations to minimize the likelihood of any future legal entanglements.
Here are seven things you should consider if you plan on renting out your home:
1. Clarify tenant names and occupancy terms
Adding a tenant’s name to the rental contract may seem obvious, but which names to include can affect how much ground you have to stand on in the event that back rent needs to be collected or other action taken. “Anyone who is listed on the lease is the responsible party for rent and any damages to the property. If you only list one person on the lease but their spouse or partner is also living there, or if they have roommates, you will only be able to hold responsible that one person who is listed on the lease,” says Kathy Hertzog, president of LandlordAssociation.org.
2. Define lease terms
Unless a rental contract is month to month, the lease will call for a specific time period in which the unit or home can be rented. If a time frame is given, it’s important to note whether the lease will automatically renew and under what terms. You usually have the option not to renew a renter’s lease, but in municipalities that have rent control, this flexibility may not be available. In areas with rent control, you are generally not allowed to evict the tenant unless there is just cause, such as failing to pay the rent or violating terms of the lease.
3. Establish rent, security deposits and late fees
A lease not only needs to spell out the amount of rent to be paid each month, but also where the rent is to be deposited and how. A due date for rent should also be stipulated, as well as the amount of any applicable late fees. In addition, specify the fee that will be charged for any returned checks, notes Tracey Benson of the National Association of Independent Landlords. Also confirm if you or your tenant will be responsible for paying association dues and handling notices.
Also state the amount of the security deposit. Specify what the security deposit covers. For example, move-out requirements could stipulate the home needs to be professionally cleaned at close of lease or move out. Inspect the property before and after a tenant moves in and out.
Benson notes the amount charged for these items may have limits based on local ordinances, so you should inquire with the proper city agencies.
4. Create a process for repairs and maintenance
Address any questions surrounding whether the tenant or the landlord will be responsible for such things as maintenance of appliances and upkeep of the yard. Benson says it’s a good idea to check with local, county and state fair housing or rental authorities on their requirements. The lease should note that if you need to do maintenance and repairs, you will provide written notice to the tenant at least 24 hours before entering the premises, Benson says. She adds that some cities may require a 48-hour advance notice and will issue fines if that is violated
5. Remember restrictions
Many restrictions are usually included in rental agreements, ranging from whether tenants are allowed to have pets to a limit on the number of cars that can be parked on the premises.
6. Protect your property with insurance
Protecting your property with the correct insurance policy is extremely important. You need a different policy if you’re renting a property to a tenant versus using it as your primary residence. While you were living in the house, your insurance was a homeowner’s policy, which covered the structure, damages and your belongings in the house. As a landlord, you’ll need rental home insurance, also known as fire insurance. This policy typically covers your home’s structure, legal costs, medical expenses and loss of rental income, if repairs are needed. Consult with a licensed insurance agent to ensure all exposures to loss are considered.
Since you are not responsible for the tenant’s belongings, you should encourage tenants to buy renters insurance. If you don’t make renters insurance mandatory, the lease should clearly state that the tenant is aware that he or she is responsible for insuring items and will not hold the landlord liable for any damages to personal possessions.
7. Screen applicants
A good practice is to prescreen applicants on the phone to let them know the monthly rent and any rental rules you have. If they remain interested, schedule a tour, show them the home, have them fill out an application and agree to a credit and background check.
Credit checks can tell you the applicant’s ability to pay financial obligations. Some landlords think the applicant’s monthly income should be at least three times the rent. It’s important to call an applicant’s past landlords as references. If you don’t feel comfortable with the information in a prospective tenant’s credit report, you’re under no obligation to rent to them. You may decide to ask for a larger security deposit in this case; it can be a way for tenants to show they’re serious about their commitment. Being consistent in all your practices can also help avoid confusion — and discrimination claims.
Be sure to follow Fair Credit Reporting Act (FCRA) guidelines, as well as all federal, state, county and city laws and ordinances. Have candidates sign a disclosure and release form prior to conducting the credit and background check. Pinkerton (pinkerton.com) provides background check services at a discount to Nationwide Private Client policyholders.
Following these seven tips will help make leasing a property as worry-free as possible and establish a good relationship between you and your tenant from the outset. Working with a knowledgeable attorney or real estate professional is also advisable to navigate municipal and state regulations and ordinances.
Hiring a property management company
If the above is more than you want to take on yourself, you might want to contract with a professional management company. Management companies typically charge 8%-10% of the monthly rent. Most will handle the following services on your behalf.
- Advertise the house for rent
- Screen potential tenants
- Collect rent and security deposits
- Negotiate rental agreements and sign leases
- Conduct periodic property inspections
- Handle repair issues
- File eviction notices, if necessary
- Deal with companion pets and the law
A trusted local real estate agent might be your best source to get recommendations for property management companies.
If you have any questions, please contact your agent or Nationwide Private Client Risk Solutions professional. For more information on how you can help prevent losses, visit nationwide.com/solutionseries.
We offer this information to assist you in making decisions that can help mitigate your risk. While we cannot address every possible scenario or guarantee these tips will work for you, our goal is to support your efforts to protect yourself and your family.