Generating rental income can be an excellent way to earn passive income, while offsetting some of your expenses! Here are a few key considerations to keep in mind when renting your house:
Research the Market
Research rental rates for similar properties in your area, along with vacancy rates, and local occupancy limits and regulations to help make an informed decision when marketing and pricing your rental. You’ll also want to consider making any necessary repairs or improvements to ensure things are in working order prior to renting the house out.
If you have a short-term rental, you may be able to take advantage of seasonal peak rates. However, understand that the turnover costs associated with cleaning maintenance may cut into your profit vs. a long-term rental that may have lower rates, but would incur fewer turnover expenses. Short-term rentals may also be subject to more local regulations than long-term rentals.
Consider a Property Manager
Evaluate the cost vs. benefits of using a property manager. While average property management fees range from 5-15% for long-term rentals (typically higher for vacation rentals), it may be worth it to hire a third party if you’re not willing or able to handle the extra work that pertains to tenant communication, repairs/maintenance, lease agreements, collecting rent, etc. Property management fees may also be tax-deductible.
Review your homeowner’s insurance with a licensed agent to ensure your coverage is adequate for rental activities. An additional way to potentially mitigate risk and separate your vs. rental finances is to establish an LLC for your rental. Consult with an attorney and/or accountant to help navigate the legal and tax implications.
Rental income is considered taxable income. To help offset this, you are generally able to deduct certain expenses related to renting out your house, such as property taxes, mortgage interest, repairs and maintenance, and depreciation. If you ever sell your home, there could be capital gains tax associated with the sale. If you also use your rental property for personal use, there are different tax implications for this as well. The rules can get complex when it comes to rental properties, so it’s best to consult your tax advisor to ensure you are reporting things correctly.