Everyone can agree that real estate is on the rise due to increased demand for houses. People are on the lookout for affordable homes, but they encounter numerous challenges such as increasing real estate prices. Therefore, now is a good time for homeowners to rent out a portion of their home. A portion can be a garage apartment, a finished basement, or even a spare bedroom.
If you’re looking for a straightforward guide to get started, then you’re in the right place. In this piece, we’ll share four things you need to consider before you start renting out part of your home.
Renovating before renting out the space is vital. Therefore, applying for a loan would be a wise decision if you lack the resources. But, before getting a loan you need to identify your competition, whether you want to rent for short or long term, etc. Furthermore, you’ll need to anticipate the budget to construct a decent space for the rental.
Another financial factor is estimating the rental charge. According to professionals, instead of a single figure, a landlord should focus on a range of potential prices. You’ll want to be conservative with your estimate and not think too big right off the bat. You should visit rental websites and research the properties in your area. Evaluate their prices along with various amenities. This technique will help you come up with a realistic estimate.
Lastly, you’ll need to set aside some money for landlord insurance. Landlord insurance offers protection from financial losses to property owners who decide to rent out their homes. If tenants damage the property or it was subject to a theft incident, landlord insurance helps the property owner by covering the expenses. Also, if your tenant gets injured on your property, this can protect you against any expensive medical bills or legal fees.
Note, your homeowners insurance won’t cover any damages in the rented space, that’s why you need landlord insurance.
Converting an unfinished garage or basement into a rental space can be intimidating and expensive. However, to offer good rental space, you need to renovate and make the space livable.
When it comes to construction, you should ensure that the space has proper footings. If the area to be rented doesn’t have proper footing, you need to build one through underpinning. You may not know this, but some locations have height requirements for their ceilings. For example, in DC if the ceiling is lower than seven feet, you’ll have to lower the flooring. The regulation may vary and depends on the state and city you live in. Therefore, you need to go through the guidelines provided by your state and local authority.
Since rental conversion is expensive, many homeowners forgo the formal certification process and rent their unit as is. However, disregarding the rental code is an unethical act and a violation. If you follow the rental code, you can acquire a rental license from the business license department. Like construction guidelines, renting codes may also vary according to local ordinances. It’s also important to keep in mind, insurance companies often won’t cover illegal units.
After your tenant settles in, you can start collecting rent. Next you need to report the rent you collect as income on your tax return. Make a habit of reporting your income on a tax return after monthly rent collection. Also, you have the option to list your expenses as a tax reduction.
It would be best to hire a professional to correctly handle your taxes.