So, you’ve decided to turn your home into a rental property. Congratulations on your decision! Whatever the reason – maybe you’re moving and don’t want to sell the property, or perhaps you just want to take advantage of the extra cash a rental property will bring in – turning your primary residence into a rental property is going to take some preparation. You can’t just move out and declare it a rental.
Here are the steps involved in turning your home into a rental property.
Step 1 – If You Have a Mortgage, You May Need to Wait
If you have a mortgage and you just bought the home, you may need to wait a specified period before converting it into a rental property.
Because lenders offer certain perks for people buying a home as their primary residence. They may require less money down or give you a lower interest rate than if you are buying the home as an investment property or a vacation home.
If you purchase the home and tell your lender that you’re going to live in it and then done, they may foreclose on the home if they find out. Check with your lender to find out if any waiting periods exist before turning your home into a rental.
Step 2 – Find Out if You Qualify for Another Mortgage
When turning your current home into a rental, you are likely going to want to buy another home to move to. It’s important to find out if you qualify for another mortgage or not before converting your primary residence. While the rental income may help you qualify, your lender may not even consider it.
Step 3 – Got an HOA? Check with Them First
If the home you want to convert to a rental property is governed by a Homeowner’s Association (HOA), you may not be able to convert it. The HOA may have rules against it, so be sure to check with them first.
Step 4 – Update Your Homeowner’s Insurance Policy
Rental property insurance policies differ from primary residence policies. If you need to make a claim after you’ve converted your home into a rental property and you haven’t updated your homeowner’s insurance policy to a landlord policy, your claim will probably be denied. Be sure to contact your insurance company and make the necessary changes before any tenants move in.
Step 5 – Learn the Tax Laws that Apply to You as a Landlord
The tax laws for a primary residence are different than the tax laws that apply to a rental property. While it’s a good idea to hire a tax advisor for your investment property, it’s a good idea to learn the laws yourself so you can make an informed decision as to whether turning your home into a rental is a good idea or not.
For example, your rental property will no longer qualify for the homestead exemption. You will, however, be able to deduct things like utilities (if you pay them), mortgage interest, HOA fees, landlord insurance policy, and any repairs you make on the rental.
Step 6 – Get Yourself and the Home Ready
Take a look around the house and identify any repairs or upgrades that need to be made. Don’t go overboard with the upgrades but keep the property on par with other rentals in the area.
Many landlords learn as they go, but this can lead to costly mistakes. Go to the Internet and learn all you can about landlord/tenant laws in your state and how you can be the best landlord possible.