Investing in a rental property can be a good way to create income and build wealth over time. Finding the right rental home and the right tenants can make a significant difference in your success as a landlord. Owning a rental property has a number of potential benefits, but there may be some ups and downs along the way. It's helpful to know what you should expect before taking the leap into rental property ownership.
Do I Need a License to Rent Out a Property?
Depending on which city and state you live in, you might need to get a license before renting your property out. You'll need to check with your local housing authority or licensing board to find out if a license is necessary. The type of license you'll need may depend on the type of structure you're planning to rent. For example, one type of license may apply to apartments or condos, while another is required for freestanding homes. You'll also need to get a certificate of occupancy specifying how the rental property will be used. If you're renting out an older home or apartment, you might need to have a lead test or safety inspection done before you can bring in tenants.
Do I Need a Lease or Rental Agreement?
Renting out a property without a written lease or rental agreement is a recipe for disaster. Having a written agreement in place protects you legally and can help you resolve any problems you might have with the tenant later on. If you're planning to rent out the property for a longer period of time such as a year or more, you will probably want to use a traditional lease agreement detailing all of the rules and responsibilities of the tenant as well as the landlord. Keep in mind that once you draw up the lease, you can't change the terms until it expires .Rental agreements are designed for short-term rentals, usually month-to-month. A short-term agreement lets you increase the rent or change the terms of the rental on relatively short notice.
Is Rental Income Taxable?
Any money you receive from owning a rental property is considered taxable income by the IRS. This includes rent, money a tenant pays to cancel a lease, any expenses the tenant pays on your behalf, and any part of a security deposit that isn't refunded to the tenant when they move out. Rental income is usually reported on Form 1040, along with your other income. The good news is that you can deduct certain expenses from your total rental income to reduce your tax liability. Examples of things you can deduct include depreciation on the property, any repairs that you're responsible for, your operating expenses and any uncollected rent.
What Are My Responsibilities as a Landlord?
Landlord-tenant laws vary from state to state, but there are certain standards you'll have to meet as a rental property owner. You'll need to make sure the rental home is habitable, which means checking for potential safety issues, ensuring that all electrical, plumbing and heating and air systems are working properly, and making arrangements for trash pickup. You'll also be responsible for making repairs when necessary and being available if the tenant needs you. Depending on where you live, you might be able to transfer some of these responsibilities to the tenant by specifying it in the lease or rental agreement.
Rebecca Lake is a freelance writer and virtual assistant living in the southeast. She has been writing professionally since 2009 for various websites. Lake received her master's degree in criminal justice from Charleston Southern University.