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Perhaps you’re eying a home to purchase with the knowledge that you won’t be ready to move in for a bit. Maybe you’ve always viewed real estate as an excellent option for generating some rental income and long-term wealth. Whatever your reason, now you’re trying to figure out what your options are for purchasing a home with the goal of renting it out as quickly as possible.
While the specific ins and outs of this process vary by location, there are some important things to consider before making this major investment.
The idea of buying a home with the goal of turning it into a rental property can be appealing for several reasons. While there are some potential perks to this scenario, it’s important to get the full picture prior to moving forward.
Likely, the primary motivation for you purchasing a rental property is to generate rental income. If you’re able to purchase in a great rental market, the income you generate from renters can potentially cover your mortgage, ownership expenses, and then some.
Additionally, a rental property gives you the opportunity to build equity and generate wealth if the property’s value increases over time.
While the IRS may consider rental properties to be “passive income”, the reality is that owning a rental property can feel much more active than passive. As the homeowner, you are ultimately responsible for all routine maintenance, as well as any unexpected issues that may arise (think unexpected appliance replacements or middle-of-the-night plumbing emergencies), though enlisting a property manager may be a viable option here.
You’re also responsible for finding (and screening) tenants to ensure the house stays occupied. Otherwise, you’ll be footing the full cost of the mortgage.
In short, becoming a landlord is far from a “leave it and forget it” side hustle; it requires plenty of time and effort.
Can I Buy a House and Rent it Out Immediately?
Hoping to begin renting out your home as soon as you close on it? While it is often possible to bring in tenants as soon as the house is officially yours, this depends on several things, including your mortgage and any occupancy requirements.
There are different types of home loans intended for different scenarios. Loans for owner-occupied homes (a.k.a. homes in which the buyer intends to live full-time) often vary in several key ways from loans for investment properties.
For example, loans for investment properties often require bigger down payments and may even have higher interest rates, as this type of loan is considered more “high risk” than a typical owner-occupied home loan.
Because mortgage loans can vary depending on the property’s use, they often come with occupancy requirements. Most commonly, these occupancy requirements stipulate that the buyer must move into the home within 60 days and live there for at least one full year. It is only after that year that the homeowner can begin renting it out. This type of requirement will heavily impact plans if you hope to rent it out ASAP.
Can you rent out your primary residence? While you may have the go-ahead to convert your primary residence into a rental property once that initial year is up, you’ve still got to make sure you proactively cover your bases with things like insurance and taxes. For example, you will likely need to switch your homeowners insurance to landlord insurance, research if you need any local permits or inspections, and understand the tax implications of renting your primary residence.
If you’re specifically focused on buying a house for the purpose of renting it out and generating rental income, you’ll be taking a different approach than if you were buying a home to make it your primary residence. In this scenario, there are important things to keep in mind.
You need to be acutely aware of your financial standing and purchasing power before making such a major financial decision. Ask yourself:
Additionally, having a firm idea of your credit score, other debts, and a potential down payment will illuminate your financing options for this house.
Not every home in every area is a great rental investment. What kind of local demand exists? What are comparable rentals in the area going for? How many houses are currently available for rent in your area, and what is the vacancy rate? If you don’t have a renter – or many renters – interested in moving into your home and paying a rent that offers you income, you probably aren’t going to be pleased with the investment.
What types of renters are most common in your area, and what type of rental are they searching for? A quiet, single-family home on a cul-de-sac may not attract as many college town renters as a one- or two-bedroom apartment, for example.
That said, apartments, condos, and townhomes may come with different rules and regulations for landlords and renters. In short, choosing your investment property involves a variety of factors and priorities.
You’ve checked all the boxes, met all requirements, and you’re officially ready to rent out your home. Here are some major steps to prepare your home, attract renters, and ensure a positive, safe rental experience.
Any tenant will logically assume that your house is safe and secure when they move in, and it’s up to you to ensure that it is. Double-check that all locks are working and windows and doors are fully secure. Test your smoke and carbon monoxide detectors. Make sure that all the big stuff – plumbing, electrical, etc – is in good working order and will function as expected once your tenant(s) move in.
To attract a tenant and ensure they are satisfied upon move-in, give the space a thorough deep cleaning and make all big and small repairs before they start lugging boxes in. Make sure your home looks tidy and well cared for to inspire your tenant to treat it well, too.
Depending on your identified market and the local demand, it may be beneficial to rent your space out fully furnished. This is especially attractive if you know there are many students, short-term workers, travel nurses, and the like searching for housing in your area.
You can furnish your home cost-effectively by enlisting the help of CORT Furniture Rental, which offers convenience and flexibility on your timeline.
Sell your space! Once your space is clean and ready for its close-up, you’ve got to take great photos (or enlist a skilled real estate photographer to help you out). You might also consider staging the space to make it that much more desirable.
Write a thorough listing and include everything that makes your home stand out. Don’t forget to include highlights from the area, including access to public transportation, nearby grocery stores, local parks, and so on.
Create a screening procedure to use with all prospective tenants since consistency is important to ensure the process is fair, equitable, and legal. You might also hire a property manager to assist with the process. You may request to see documents such as pay stubs, rental history, and employment verification. With their written consent, you can also run background and credit checks.
Thoroughly screening potential tenants will help you find someone who is responsible and financially equipped to rent your space, which can save you major headaches down the road.
When setting up a rental property, flexibility can make a big difference—especially if you’re still refining your approach. CORT Furniture Rental offers furniture solutions that allow you to furnish a home without tying up capital in permanent purchases. With delivery, setup, and pickup included, it’s an easier way to prepare your property for tenants.
