House for rent
When you purchase a home, you most likely imagine living there for years. However, sometimes life circumstances change your plans, leading you to consider converting your primary residence into a rental property. Not only can rental ownership generate wealth, but it’s also an incredible learning experience to own real estate investments.
It’s easy to assume that converting your primary residence into a rental is easy, but it’s not always that simple. This article addresses whether you can rent out your primary residence and what to consider before converting your home into an investment. We also share tips on easily converting your primary residence into a rental. Keep reading to learn how to rent out your primary residence and start earning cash now!
Whether you got a new job across the country or want to try your hand at real estate investment, there are numerous reasons you may want to move out of your primary residence and put it up for rent. You may ask, “Am I allowed to rent my primary residence, especially if I just moved in?” The simple answer to this question is yes; homeowners can rent out their primary residence. However, many factors need to be considered before doing so.
Suppose you’ve thought about turning your primary residence into a rental. In that case, it’s essential to research and ensure you’re thoroughly prepared to transition from a homeowner to a landlord. Here are 3 elements you need to consider before converting your primary residence into a rental property:
It’s possible to rent out your home if you have a mortgage. Still, it’s necessary to communicate with your lender about converting your residence into a rental to ensure you avoid mortgage fraud. Whether you’ve invested in a government-backed loan (FHA, VA, USDA) or a conventional loan, home buyers earn a better deal when purchasing a primary residence than an investment property. With lower down payments and interest rates, buying a primary residence and immediately putting it up for rent can be tempting. However, if you decide to fill your home with tenants before consulting with the lender, this can constitute fraud. It’s best to be completely honest with your lender and ask about their requirements and rules before converting your primary residence into a rental.
While some lenders make an exception, waiting 12 months before turning your residence into a rental property is a common rule. There are rare circumstances that require homeowners to move out and rent their primary residence immediately. For instance, if you’re on active duty in the military and get deployed, you may need to rent out your primary residence right after purchasing it. Specific lenders are more likely to work with property owners than others, so it’s important to do your research and find a loan program that caters to your needs and preferences.
Switching from a homeowner to a landlord could complicate your income taxes with the IRS and your state’s revenue department. Every rent payment earned becomes taxable income, and with no employer withholding taxes from this positive cash flow, your yearly tax bill could increase dramatically. The good news is that as a real estate investor, you’ll reap the benefits of multiple tax deductions such as insurance premiums, HOA fees, mortgage interest, property taxes, and cost of repairs and depreciation. Maintaining extensive, detailed records of your finances throughout the year is paramount. If needed, you can also hire a professional accountant to ensure your tax return is correct and that you’re receiving all the tax benefits available to you.
Before converting your primary residence into a rental, you must brush up on state and federal housing laws and learn the obligations you’ll have as a landlord. Nationwide regulations such as the Fair Housing Act or the Keating Memo, for example, can determine rental occupancy limits, which is a crucial factor real estate investors need to know before renting out their primary residence. Additionally, it’s vital to understand what you’re responsible for as a landlord and what the tenant is responsible for regarding your rental property. Ensure you know the ins and outs of lease agreements, security deposits, tenant screening, etc. The more familiar you are with this information, the easier the rental process will be for you and the renter.
Homeowners insurance won’t always cover enough when you switch your primary residence to a rental. Before a renter moves in, notify your insurance company or agent about the change in property status. Although you may have to pay more upfront, it’s better than discovering that your insurance won’t cover hefty repairs because your rental isn’t adequately covered. Updating your insurance also protects you from liability as a landlord.
In addition to landlord insurance, you may need to consider other types of coverage, such as personal liability, wrongful eviction, or discrimination liability insurance. You can also encourage tenants to purchase their own insurance program to protect their personal belongings while they rent your home.
As a landlord, you must expect and prepare for regular maintenance and other property needs. Filling your home with tenants produces numerous benefits, but it also means your primary residence will have an increase in wear and tear. Before converting your primary residence into a rental, set aside money for repairs and diligently inspect the entire property, checking the electrical and plumbing systems and ensuring everything is in working order.
If you’d like to go above and beyond, you could conduct a makeover of your primary residence to turn it into a fresh home for renters. Upgrades like a fresh paint job or new kitchen cabinets can bring your property up a notch and improve its marketability.
Whether you’re new to rental ownership or not, it can be overwhelming to manage your property alone. When you take the leap to become a real estate investor, you’ll need someone on your side 100% of the time, from marketing your rental to handling tenant disputes. Hiring a professional property manager such as TrueDoor Property Management can be an incredible investment that pays off for years. Our skilled team handles every maintenance task, so you don’t have to. Before converting your primary residence into a rental, consider hiring a company that will maximize your investment and educate you along the way.
Have you thought about converting your primary residence into a rental but want support in the process? TrueDoor Property Management is here to help. Our Southern California property manager team expertly manages over 800 rentals in Orange County and the Inland Empire.
We handle property advertising, tenant screening, maintenance and repairs, property inspections, rent collection, and more.
Our team can help you convert your primary residence into a rental property efficiently and effectively. Don’t wait to gain the support you need. Contact TrueDoor to hear how our property management services can set you up for success!
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