Being a landlord is considerably different from being a homeowner. Renting out your home involves added responsibilities and different liabilities. If you handle the situation wrong, you might find yourself in court, or with damages you won't be compensated for. From your first decision to rent until the moment you hand over the keys, it's easy to make mistakes.
Not Covering All Expenses
You already know that if your home has a mortgage against it, the amount of rent you charge should ideally cover that expense. However, your mortgage isn’t your only home-related cost. Just as when you lived there yourself, you'll have to pay for maintenance, repairs, taxes and insurance. You might find yourself paying out of pocket every month if you neglect to factor in these costs.
You might be tempted to accept a tenant who's the friend of a friend of a friend without running a credit check or a background check on the individual, but this could turn out to be a mistake. You don't have to be a detective or a police officer to run a background check. You can usually do it online for a nominal fee. However, you do need the tenant's written consent to get a copy of his credit report. If you decide against renting to him based on the fruits of your investigation, document it and be honest about it. If the tenant gets the impression that you're declining to rent to him because of his race, his gender, or some other personal issue, you could be open to a discrimination lawsuit.
Get It in Writing
Even if you're just renting to a friend or taking in a roommate, it's important to get the terms of your deal in writing. Neglecting to have a legally enforceable lease in place can invite a lot of headaches, particularly if the tenant damages your property or falls behind with the rent payments. Your lease should outline what will occur if any of these things happen, as well as its duration and what you're providing in return for the rental payments. What, if any, utilities are included? You can avoid problems and disputes later if you spell these things out ahead of time.
Handling the Security Deposit
State laws regarding security deposits can vary a great deal. Don't go in blind, taking money from your tenant, then dropping it into your personal bank account until you figure out what you're supposed to do with it. If your tenant -- or your government -- has reason to believe that you misappropriated the deposit, you could find yourself in legal trouble. Do some research first to determine if your state requires that you place the deposit in an escrow account for your tenant, and whether he's entitled to earn interest on the money.
The greatest mistake you might make in renting out your home is not arranging for the proper insurance coverage. Your homeowners policy probably will not cover your tenant. If you assume it does, and if something then goes wrong, you could find yourself with a financial mess on your hands if your insurer declines your claim because you're not living in the property yourself. You'll probably need to purchase a landlord's policy that will cover you against damage your tenant does to your home, as well as against liability if he gets hurt on your property while living there.
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