Some homeowners are lucky enough to be able to obtain a second home. They often use this as their vacation home whenever they need to get away from their regular daily lives. They choose a house built in a different state or city to enjoy another kind of lifestyle. But now that times are tough, everyone could use another source of income to sustain their needs or wants. If you have a second home waiting for your next visit, why not turn this into a money-making machine?
More people are indeed looking forward to buying a house. But then, some are unable to get mortgage approval. Others simply can’t afford a house that they would rather a home close to their dream home.
Letting your second home generate passive income can be your first step towards becoming a landlord. You can choose to rent the house out for a short period and see if managing a rental property is something you enjoy doing. If not, you can simply hire a property manager or wait for the tenant’s lease to expire so you can claim your space.
Asking the Right Questions
But before you decide to transform your second home into a rental, there are some major considerations you can’t afford to skip. This is a big decision to make and often involves a series of investments. Asking the right questions will make your task more manageable.
What Are the Local Laws for Rental Properties?
Each country and state has different laws you are required to follow so you can rent it out legally. You will need to get the necessary permit and licensing to make the rental legal. It will also determine the kinds of tenants you can accept.
What Is Included in My Mortgage Occupancy Clause?
Most homeowners were able to make a second home purchase thanks to a mortgage. If this is your case and you are still paying your lender, then it makes sense to check your occupancy clause. It will state the amount of time you are expected to use the house as a primary residence.
What Are the Taxes and Deductions Included?
Since you will be earning money from your second home, you are expected to make the necessary payments. Usually, you need to report your rental income for a lease of more than 15 days. Anything less than that, you can deduct certain expenses like mortgage interest payments, insurance, and maintenance.
What About Landlord Insurance and Home Warranty?
Your regular homeowner’s insurance policy won’t be enough to protect your new rental property. You will both need a landlord’s insurance to protect the property and your belongings and an additional policy to reimburse lost income due to covered loss. A home warranty, on the other hand, will cover system repairs and replacements to maintain the property.
Preparing the Property for Rent
Now that you got all the basics sorted out, you now need to prepare your second home. Here are some things you will need.
Prepare the Necessary Documents
Permits and licenses aside, you will want to consult with a property lawyer to draft a lease contract including all terms and even the rental fee. You also need to check in with your homeowners’ association for any restriction or rule you need to know about. Ask for their reply in writing and read all terms before you sign.
Invest in Some Upgrades
There are certain things worth investing in to make your rental enticing to tenants. For instance, a custom-made metal sign to mark your home address. This will make it easier for guests to find your home and invite them over for a warm welcome.
If you have enough budget, get rid of old carpeting for a more durable wood flooring. Pressure wash your exterior and get rid of your personal clutter. Invest in a low-maintenance yard if possible.
If some parts of the house now have chipping paint, consider a professional paint job. Think of this as an investment. The property will look cleaner and in better shape while boosting its aesthetics and curb appeal.
Cleaning the Property
You will want to make sure the house is clean and move-in ready before you put it on the market. Have it professionally deep cleaned to get rid of dirt, stain, other visual eyesores, and annoying smell. This will help you grab the attention of quality tenants.
Market the Property
Now that your property is ready, it is time to snap excellent photos and place your ad online. Take photos of your home’s best features. Don’t forget to create a short and engaging description for future tenants.
You might be having second thoughts about renting out your second home. This is why you must rule out the pros and cons before making the decision. There are pros you can turn to in case you need advice. You can use this article as a short guide to give yourself an idea of what it is like to start the process.