If you have a mortgage on your second property, you may be able to transform it into a rental property. You also need to consider insurance, tax, and mortgage implications before you start. You also need to consider business permits and licenses, zoning restrictions, building codes, regional by-laws, etc.
However, with the right amount of effort and know-how and a few DIY upgrades you can vastly increase the value of your rental property and the income you will gain from it. Simple upgrades like stylish slatwall panels not only look great but dampen sound between rooms which is a must if you want multiple different tenants in one building. If this sounds like something you are ready for, it may be possible to transform your second home into a rental property that will help generate a recurring source of income for you and your family.
How To Turn Your Second Home Into A Rental Property
First, you need to decide if being a landlord is a good fit. You may also need to consider refinancing your mortgage. Most lenders believe that a person who lives in their home will fight tooth and nail to keep a roof over their heads.
Conversely, someone using a second home as a rental property may be more likely to sever ties when the going gets tough. You may be seen as a greater risk to your lender if you convert your second property into a rental, and may get higher interest rates on your second home’s mortgage as a result.
You also need to begin shopping around for landlord insurance. This will protect you financially from any damages or losses that occur on your rental property.
Landlord insurance tends to cost more than conventional homeowners insurance, as rental properties tend to be subject to more wear and tear than primary residences. You may also consider protecting yourself and your loved ones with an umbrella policy or LLC.
When you convert a home to a rental, you leave yourself open to liability by tenants. From slip-and-fall litigation to gender or racial discrimination suits, you need to be prepared for anything that may come your way.
Moreover, you need to consider your short-term and long-term costs and the general rules of the market that you are in. Perform the necessary due diligence to ascertain what you can reasonably charge for your rental property.
If you still need some help, then you should consult with a reputable and licensed real estate agent in your jurisdiction.
You also need to set the rules. There is a lot to consider, from garbage removal and pets to yard maintenance and maximum occupancy. In addition, you need to determine if being a property manager is a good fit for you.
You also need to be well versed in the law. Contact your town’s housing department to get a copy of all of the local regulations and by-laws. A tenant application form will also need to be produced.
Finally, you will need to find an actual tenant. Perform the necessary background and credit checks required to find a reliable and stable tenant who will not cause any problems for you.
You need to check your mortgage before going further along the process.
Tips To Consider Before Converting Your Property Into a Rental
If you are still paying off a mortgage on the property, go over the fine print. You may also want to consider meeting with your lender to ensure that both of you are on the same page.
You will also need to make changes to your current insurance package. You will need to switch from a homeowners policy to a rental policy asap.
Furthermore, you need to be fully aware of all the necessary tax implications of a home conversion, especially 1031 exchange rules for rental property.
You will also need to consider whether you would prefer to rent out your second home as an unfurnished or furnished unit to tenants. You will also need to research various landlord and tenant laws.
Checklist For Turning Your Home Into A Rental Property
You will need to determine if you need to refinance your property. You will also need to handle all necessary repairs and cosmetic upgrades. Insurance will also need to be updated so that you do not run into any legal issues.
You will also need to secure the necessary permits to rent out your property legally. You also need to be prepared for rental property charges/fees.
Taking The First Step
As can be seen, there are many steps involved in converting a second home into a rental property. However, the time and effort will be worth it, as the income generated from your rental home can be put to good use in record time.
Sources:
6 Tips for Converting Your Property to a Rental – Goldmar Property Management
Turn Your House Into A Rental: Step-By-Step Guide – Smart Money Mamas
Changing Second Home to Investment Property: Mortgages, Taxes and More – Vacation
