Many homeowners consider renting out portions of their homes to tenants for extra income, or even to help cover their mortgage. Also, parents who find themselves in an empty nest have a surplus of living space, which is ideal for renting. Whether homeowners are considering renting for convenience or necessity they should be aware of the basics of becoming an onsite landlord.
1. Is Renting Legal?
Homeowners who want to rent a room or portion of their property should begin by researching if it’s legal in their area. Renting regulations vary depending on the location and zoning of the property, terms of the mortgage and whether the owner lives on the property. Visit your local city or town hall website to learn more about renting legalities. For example, in some locations, homeowners may be able to rent one room of their home to a tenant. However, in some locales, if the owner offers a room with a separate kitchen and bathroom, it may not be legal. Or, perhaps, if the tenant is related to the owner it could be allowed, where if the tenant is unrelated, renting might be illegal. Some areas require registration and inspections of all rental properties. The bottom line is that homeowners should explore renting legalities before deciding if they should start renting.
After owners have researched renting laws for their properties, they may consider remodeling to meet the requirements or to make sharing space more comfortable, such as the basement, second level, space above the garage, the backyard cottage or mother-in-law suite. Be sure to make all upgrades to code and with the proper permits.
2. Tenant Screening
Once homeowners have determined that renting is legal for their property, it’s time to look for tenants. Most owners want to rent to someone they know or are comfortable sharing space with. Remember, renting property is a business transaction and should be treated as such. Look for tenants who are responsible, pay rent on time and respect the property. Homeowners should use landlord screening tools for all rental applicants. These include credit checks and background checks. Owners should call a tenant’s references to get a better idea of the tenant’s rental history. Friends and family may seem like the initial best fit, but homeowners could also be better protected with a screened tenant.
Homeowners should familiarize themselves with Fair Housing Laws before advertising their rental property. The provisions of the Fair Housing Act states it is “…unlawful to discriminate in the sale, rental, and financing of housing, and in the provision of brokerage and appraisal services, because of race, color, religion, sex, handicap, familial status, or national origin.” Therefore, homeowners cannot target to specific groups or exclude any demographic. In marketing a property, it is illegal to use marketing language such as, “Perfect for students” or “No families allowed.” All interested parties should be given an equal opportunity to view the property and apply for tenancy. Also, when homeowners are interviewing applicants, certain questions and topics should be avoided, such as marital status, disabilities, or whether the applicant has or is expecting children. Stick to non-discriminating screening tactics that include rental history, references and thorough checks of background and credit. Legal grounds for rejecting an applicant are smoking habits for non-smoking properties, pet ownership for units with no pets allowed or below standard credit requirements.
Owners who decide to rent portions of their properties should absolutely use formal documentation for their lease agreements. Proper documentation protects the owner’s costs, property and safeguards the owner from potentially bad tenants. Oral agreements are the standard in some areas of the country, but tenants and owners may recall the agreement differently.
To avoid risk, owners should make sure the lease documentation covers specific agreement details. Tenant responsibilities generally include the upfront costs of first and last month’s rent and a refundable damage deposit. The document should also specify any rules the owner has about how many people live in the unit, the length of the lease, penalty for late rent payments, required notice for lease termination, pet requirements, acceptable breeds/sizes, pet rent or non-refundable/refundable pet damage deposits. Landlord and tenant should also agree on the maintenance requirements of the property. Tenants should sign all agreements and a copy of the signed document should be given to the tenant.
Signed lease documents come in handy as a reference for both parties if questions arise. Owners who end up with difficult tenants may rely on the agreement to terminate tenancy. Homeowners can find general lease documents online, but risk using out-of-date documentation. Cautious owners should hire an attorney to write up a lease for the specifics of their rental circumstances.
Owners who are aware of mold, lead paint, or asbestos on the premises must disclose it to the tenant. This law is state regulated, and should be researched by the owner before tenants move in. Make sure tenants report any mold to the owner if it arises. Again, this disclosure should be discussed, agreed on and a document should be signed for the protection of the owner.
Just as homeowners need insurance for their properties, they also need to confirm that their insurance properly covers the rented home. There are fewer stipulations when homeowners live onsite with renters. However, owners should verify the coverage with their insurance company prior to renting. Will the coverage protect against damages caused by the tenant? In some cases, owners need landlord’s insurance to protect their property and possessions. Meanwhile, tenants would need renter’s insurance to cover their possessions and provide accident liability protection.
In conclusion, homeowners who are thinking about renting part of their homes should review these steps to protect themselves. There are laws and regulations to follow before renting, and steps to take to ensure the tenancy will be a positive experience. Homeowners in this economy may find their mortgages difficult to pay. Renting is a great monetary solution for some, and others struggle through the process. With a little knowledge, preparation and a few safeguards, owners can invite renters into their homes confidently.
Tali Wee writes for real estate web site Zillow.