Do you own a house? If so, congratulations—you’ve already taken your first big step toward investing. Real estate holds value as a long-term asset, but what happens when you no longer need your home? You can always try to sell, of course, but renting out your property is another option to consider.
You may be wondering, “How much can I rent my house for?” Let’s take a look at the answer and what it might mean for you.
- Renting out your house includes much more than collecting rent; you’ll be on the hook for all maintenance and tenant relations.
- Websites such as Zillow and Redfin provide rental calculators to give you a starting point for rent prices.
- Your rental property income is taxable, but your expenses are tax-deductible.
Should You Rent Out Your Home?
Choosing whether or not to rent out your home is a big decision. There are many factors to consider before making this choice:
- Are you moving temporarily or permanently? Do you plan on living in the home again?
- How is the rental market in your town? Is demand high?
- Are you willing to sell the property? Does it make sense financially?
- Can you afford the costs of maintaining a rental property?
- Is this an investment property? Are you looking to purchase more homes in the future?
Thoroughly answering these questions will help you decide whether or not renting out your property is a good idea. For example, if you’re planning on moving back to your home in a few years, renting it out may make sense to save yourself the hassle of buying a new house when you return. You may also want to keep the property if the real estate market in your area is in a slump and you’re having difficulty selling.
However, you’ll also want to factor in the wear and tear tenants will inflict on your property, which may need to be addressed before you move back in.
Deciding What To Charge for Rent
Many landlords use what’s known as the 1% rule, basing their rental price on 1% of the home’s value. So if your home’s value is $200,000, you could rent it out for $2,000 a month. Understanding how much rent you can get for your house, however, deals with more than one calculation or point of view. While you want to make sure your mortgage (if you have one) is covered, you’ll also want to take a look at additional variables.
Here are four factors to consider when deciding how much to charge for rent.
Start With Online Estimates
Websites such as Zillow, Redfin, and Trulia gather information about the real estate market, including rentals in your area. Both Zillow and Redfin offer their own rental estimate tools, which utilize data to give you a starting price point for your property.
You can also use search filters to explore the going rate of rentals in your area. You’ll want to find homes comparable to yours in size, condition, location, and amenities.
Note: Be sure to look at rental histories of properties. These can give you valuable information as to what type of rental rates bring in tenants.
Weigh the Rent Against Your Expenses
There’s much more to a house than just a mortgage. You’ll have regular maintenance and as a landlord, will be responsible for any unexpected emergencies.
If you’re not local, you may want to consider hiring a property manager to take care of your property for you. In this case, you’ll also have to factor in the cost of the management company, which can include a monthly percentage of your rent and even a finder’s fee for acquiring new tenants. These costs will vary depending on your location; investigate this before landing with any single company.
Rental income is taxable, which means you’ll need to report your income each year. More than this, however, you’ll want to be sure you report any expenses you incur as a result of renting, since these costs can be tax-deductible and act to lower your tax burden.
Adding in a rental property complicates taxes, which may mean you’ll want to hire someone to help you prepare. Don’t forget to take this into account when considering the cost of your rental.
Talk With a Professional
Whether you’re new to this or a veteran landlord, it’s nearly always a good idea to consult with professional help before renting out your home. Industry experts can give you insights that you may not even know you’re missing. This includes both real estate agents and property management companies—although you’ll want to ask beforehand if they’ll charge any fees for this service.
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Other Factors To Consider Before Renting Out Your Home
There are more than just financial considerations when deciding if you should rent out your home:
- Will your lender allow this?: Lenders of some loans, such as VA loans, have occupancy requirements that may require you to live in the home.
- You’ll need to change your homeowners insurance: Insurance costs and coverage vary depending on whether or not you’re occupying the home, so you’ll need to update this information if you choose to rent.
- Do you want to be a landlord?: Being a landlord is a type of job, even if you end up hiring a property management company. If the home floods or rats invade the kitchen, it’s your responsibility to repair. You’ll also want to be wary of poor tenants.
- What happens when costs rise?: Some states have enacted tenant protection rules that cap how much you can increase rent each year, no matter what it costs you.4 Can you afford to take this on?
The Bottom Line
Renting out your home can be a lucrative endeavor, especially when the rental market is surging. Before you do so, however, you’ll want to weigh all the pros and cons, including the financial and physical tolls of being a landlord.
Frequently Asked Questions (FAQs)
How do I rent out my house?
Renting out your house is more than just moving somebody in. As a landlord, you’ll want to identify a good rental price, screen potential tenants, and ensure your paperwork is in order before doing so. Popular real estate websites can help you pinpoint rental rates, while background screening companies can give you a good idea of the person who’s looking to settle in your house.
How much should I charge to rent a room in my house?
It can be harder to identify the amount you should charge for a roommate than for a whole house rental, but the same principles apply. Look for comparable rental rates in your area to make an accurate assessment. You should also carefully consider any potential renters as they’ll be living with you; issues with shared space and domestic duties need to be worked out beforehand.
Source: The Balance Money