Getting A House Rent Ready
Real estate is the safest way to build wealth because the property is an asset that always appreciates with few exceptions. If you’re thinking of moving, consider if holding on to your current property and converting it into an income producing investment is a viable option.
If your planning on hosting an Airbnb property then this information applies to you as well. There’s a lot that goes into getting a house rent ready but the good news is that doing it right the first time will pay big dividends for you over many years. So let’s get started…
There are two types of rentals, short-term and long-term. Generally, short-term rentals make considerably more money but also demand more attention since you need to arrange for cleaning after each tenant leaves in time for the new occupant. Many Airbnb hosts do their own cleaning but that’s up to you.
Renting it out means someone else is paying down the mortgage all the while building up your own equity and net worth with every month that goes by. Another bonus is the extra money every month and a big tax deduction every year. Sounds interesting?
In fact, rental property is a good way to lower your income tax rate and also increase deductions related to the rental property. For more on how real estate can build your wealth, check out Build Your Wealth Quickly Through Real Estate.
Maintenance items such as lawn maintenance and repairs can be deducted. Talk to your accountant or financial expert.
If you’re going to set up a short-term rental, check with your city first. Many cities and subs may have restrictions on this type of rental. That’s also the case with HOA associations.
Looking At It Differently
When you decide to convert your home into an income producing asset or acquire a rental property, you need to look at it as a business and it needs to be run as such. If you want to benefit come tax time, you must provide evidence that it is, in fact, a business.
The IRS has certain rules regarding how often you can personally occupy the property in a given year. I’m not an accountant, but I do own and operate 10 rentals, some of which are vacation rentals out of state.
Start with clearly defining your main and most pressing objective. Clearly identifying the main objective will help you lay out a strategy upfront.
Here are 5 top questions to seriously consider:
- How much do you currently owe on the property? If your mortgage rate is higher than the current rental rate in your area, forget it. It makes absolutely no sense to subsidize the difference with your own money. If you have a home equity lien on the property, that could also take a big bite out of your monthly income.
- Is it currently in good condition or does it need a lot of work? You need to be very careful with this because pouring in tons of money to build a whole new kitchen, flooring, etc., may not be the wisest choice. You certainly do not want to over-improve your property and not be able to charge enough monthly/yearly rent that would help you recoup that cost. Vacation rentals demand higher quality than long term renters expect.
- Neighborhood. Is your neighborhood attractive to renters? Is it centrally located, have low crime and offer good schools. Is it a highly desireable area or middle of the road. The rate in which rents are rising in your neighborhood will clue you in.
- Availability. Take a look at how many rentals there are in your area? Are they filled quickly or do they linger on the market a few months? This is a clue to your competition and the area’s tenant
desireability. You can find out this information with the help of a real estate agent as they have easy access to far more data than the general public would know how to obtain.
- Are you close enough to the property to keep an eye on it and manage it yourself or will you require the services of a property manager? Typically, property managers charge around 10% plus a cleaning fee for short-term rentals. Call a few of them to get a better idea of this added expense.
If your main objective is to create an income stream from your rental, then ideally your home mortgage needs to be well below what the going rent in the area is.
Keep in mind that you will likely be competing with other rentals in the area. So charging a much higher rent or daily rate than your competitors is not a good strategy.
For short-term and vacation rentals, you may also have to offer discounts in order to fill up as many days as possible during slow months. Vacant homes do not make money, they cost you money!
How Much Do I Need To Make?
If you were lucky enough to lock into a super low mortgage rate when you first bought the property, chances are you’re in really good shape. Obviously, if there is no mortgage, then your way ahead of the game.
If however, you’re still living in the property and your mortgage rate is higher than the current rate, my biggest advice to you is to refinance it now. Trying to refinance the property after you’ve moved out and
Don’t be a slum lord! You are now offering housing to another person or family. It should look clean, well-maintained and safe. This will make it instantly attractive to renters.
Working Out The Numbers Is Not That Difficult
There are so many sites and so called experts out there that overly complicate this with all kinds of formulas and theories. It’s really not complicated.
Basically, the rental income from your property has to cover all of your current holding costs and then give you something extra every month.
Let’s make this simple. The first step is discovering how much rent would you need to receive just to break even with all the costs of the property? It’s critical that your numbers are accurate. Look back at your receipts for the past 12 months. Write down your…
- Monthly mortgage
- HELOC and loans
- Property taxes (often included in mortgage payment)
- Insurance (often included with your mortgage payment)
- How much do you spend on maintenance every year?
- How much will it cost to hire a property manager?
What costs are other rentals including? Water? Internet? Cable? Add that in as part of your monthly holding costs. Most cities such as Detroit, landlords are required to cover water costs.
Put aside 10% every month for times when you’ll have to pay a plumber, carpenter, etc.
Next is, how much more can you charge above your
In many ways, long-term rental units are easier and less expensive to set up and manage. With long-term rentals there really is no need to furnish the rooms since most renters will have their own furnishings with them.
Unlike short-term rentals, there’s no need for a cleaning crew. This alone saves a lot of money since cleaning crews can charge around $100 per cleaning. On Airbnb and Vrbo you can specify your cleaning fee upfront so the guests pay it when they make a reservation. Cleaning your unit yourself can save you a considerable amount of money but will also take up much of your time in the busy season.
The property manager gets involved with any complaints, repairs, rent collection and evictions. They will also help you find a tenant and list the property for you when you sell.
Preparing For Short-Term Guests
Short-term guests have higher standards than long-term renters. They will expect cleanliness, comfort, and convenience. This means you need to furnish and prepare the property in a way that is on par with a hotel room with some nice little extras on the side.
The better you can think proactively as to their needs and wants and also respond quickly to their inquiries or any potential issues, the better review they will give you on the Airbnb or Vrbo sites.
This is critical! Receiving consistently high reviews on these sites can automatically upgrade you to “Super Host” status which then places your rental at the top of listings and as featured listings. Making it more likely that you will attract more business. Your guest reviews will make or break you, so pay attention to them.
Think like a guest. What do hotel rooms provide? Make sure the mattress is comfortable and in good condition (not sagging in the middle). Fresh clean linens and towels. Avoid heavy drapes and curtains, choose nice blinds that let the light in and still provide privacy.
TIP: Be sure to have your rental checked for bed bugs periodically especially if the location is near a beach. Any mention of bedbugs in a review is the kiss of death on Vrbo and Airbnb sites.
Don’t forget to include Wifi and cable. If your rental is located in a touristy spot, then certainly provide brochures and a list of “Things To Do” highlighting local events, restaurant and shopping nearby.
Here’s a list of things your guests will expect:
- Clean towels (at least 2 hand towels, washcloths, and large bath towels), toilet paper and tissues.
- Hand soap and hairdryer.
- Clean sheets, comforter or quilt, plush pillows. Using white bed linens is easier to maintain for the times you need to bleach out any stains.
- Pillow protectors and mattress pads.
- Iron and ironing board.
- A first-aid kit.
- Plates, silverware, mugs, and glasses for the maximum number of guests your rental can occupy.
- Microwave oven and toaster oven and a fire extinguisher.
- Trash cans and extra liners.
- No smoking sign is clearly displayed.
- Pot holders, kitchen towels and cooking utensils (spatula, ladle, large spoon, etc.)
- Coffee maker and teapot.
- Basic seasonings such as salt, pepper, Italian seasoning, sugar, and butter.
- Dishwasher tablets, laundry detergent, disinfectant spray, and dishwashing soap.
- TV remotes and VCR remotes, instructions and WIFI password.
- Contact information for the property manager or your contact info, nearby hospital or clinic.
You can also find and download HomeAways’ Amenities checklist. It’s well laid out, listing all the things you should have available for your guests by room.
If renting a townhouse or condo you no longer occupy. It’s a good idea to set aside a closet with a lock and key that only you (and your property manager) have access to.
Place a shelf in there and use it to store your cleaning supplies and any extras (paper products, tissue boxes, napkins, light bulbs, soap refills, dishwasher tablets, coffee filters, etc.) you want to keep there. In our townhouses, we use the storage space under the stairs for this but you can use a hall or linen closet as well.
It’s The Little Things That Matter
What did I mean by “the little extras’? Well, make them feel at home. In addition to a coffee maker, supply plenty of filters and some instant coffee.
Instead of the hard scratchy towels, most hotel rooms have, give them soft plushy towels to wrap themselves in and a soft mat under their feet when they step outside of the tub.
An extra warm blanket in the closet in case they get cold and some pillows on the sofa for back support. Make sure there a stick of butter and/or a little cooking oil if there is a kitchen in the unit. As an added touch, you could also provide:
- Fresh flowers on the table
- Instant coffee, a new pack of cookies, milk or juice.
- Some DVDs your guests can watch.
- If near a beach, then definitely provide some folding chairs, umbrella, beach toys for kids.
- Post instructions on the washer/dryer and make sure the dishwasher works properly and there are no dirty dishes left inside.
Make sure there are no safety hazards. The last thing you need is a lawsuit because of your neglect. Stair rails should be firm. Eliminate any trip hazards. Check that there are no exposed wires anywhere and that all CO2 and smoke detectors are working.
If you think many of your renters are families, then it’s a good idea to cover easy to reach plugs with plastic inserts to protect little ones.
If there’s a front porch make sure to provide a rocking chair or Adirondack chair. A patio table with umbrella and chairs to sit outside on a patio, deck or by the pool should also be provided.
Managing A Rental Property
If you’re moving out of state and/or you’d rather not have much interaction with your tenants, consider hiring a property manager. As I mentioned before, rates can be from 10% minimum to 30% on the high end depending on the location.
A good management company will have their own in-house contractors to handle emergencies. They will also be the first point of contact for renters questions.
Several of our own long-term rentals are in NJ and we live in Michigan. We don’t pay a formal property manager because having lived in NJ for most of my life, I have a local contractor, plumber, and Realtor who can help.
Same thing here in Michigan. Building strong relationships takes time but once you have a mutual relationship built on trust, don’t ever let it go! They are hard to come by.
When I need a professional, I call a local plumber, electrician, etc., and put them in touch with the tenant. Because my properties are well maintained, I don’t have to do that very often at all.
Also, my tenants can easily contact me. I don’t mind at all. I do the vetting, check their credit and background. I do call on past landlords and verify employment.
Because I take the time to do this, I very rarely have any problems with my tenants. In fact, I hardly hear from them at all! So, once in a while, I’ll reach out just to see how things are going, wish them a happy holiday, etc. It’s very important to keep the lines of communication open.
Treat your tenants with the same level of respect you would expect. They are not “lesser” than you simply because they are renting. For many folks, it makes more sense to rent before buying.
Take care of things quickly when an issue does arise. In turn, they will be far more likely to take good care of your property while they occupy it.
Keep track of all of your receipts concerning the rentals, including what you spend on marketing, and log all maintenance and repairs each year. This will make your life so much easier come tax time.
Also, well-maintained property is very attractive to both home buyers and investors when you decide to sell. For more on this check out Selling Investment Property? Avoid These 5 Red Flags.
Getting The Word Out
Not all management companies will advertise your rental very effectively. If you’re doing short-term rentals, you should look for a company that specializes in that industry. Make sure these companies provide extensive marketing throughout the internet, not just on their own website.
Some property management companies that have their own website will add your rental to it but that’s usually it. In order to advertise your rental effectively, you must go where the buyers are!
That requires that you set up an account at Zillow, Trulia
Highering a real estate photographer to take interior pics of your rental is always
There’s so much more to write about but this blog is long enough, don’t you think? I hope I’ve covered most of the basics involved in getting a house rent ready. I’ll be writing up more on this topic. I hope you’ll come back and visit often.
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