How To Rent Your House: A Step-By-Step Guide

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Renting out a house can be an excellent investment opportunity, and thanks to the internet, more people can achieve this goal than ever before. However, you need to be aware of the challenges that come along with being a landlord. 

Having tenants can provide you with additional income, but there are also issues that can arise. When you have the right details, you can decide whether renting or selling your home is the right option for you. People often rent out their homes for these reasons: 

• They tried selling, but the property market is weak, and they couldn’t get the price they wanted.
• They took a new job elsewhere but didn’t want to sell their home.
• They owe more than the house is worth but can cover the mortgage with rental income.
• To realize the incredible wealth-building opportunities a rental property can provide for their financial future.

If you’re interested in learning how to rent out your house, you’re in the right place! We’ve created this definitive step-by-step guide to help you learn all about the process.

Should You Rent Out Your House?

The first question to ask is: Should you rent or sell your home? This is a big decision and shouldn’t be taken lightly. Here are a few reasons renting your home can be the best move:

• You can hold onto your property while rental income pays down your mortgage. Over time, rental property values (hopefully) will climb and build your wealth. If you can rent out your house for more than your monthly expenses, you will also experience additional monthly cash flow. That’s the goal for all potential landlords — and what we at BiggerPockets want to help you achieve!
• Start your investment career with no additional costs. Renting your property could be the first step in a tried-and-true method for building wealth. Many real estate investors start this way — renting out their homes as they upgrade to bigger or better houses. This may also help fund your retirement, as you may end up owning multiple properties “free and clear” by the time you are ready to retire, providing monthly rental income or a lump sum if you sell.
• Retain the possibility of returning to that home. This is especially helpful if you’ve been forced to move quickly because of a temporary job relocation.

Step 1: Choosing Short-Term Or Long-Term Tenants

Once you’ve made the decision to rent your property out, you have to choose whether you want to have short or long-term tenants. There are advantages and disadvantages to both. Consider these pros and cons so that you can make an informed decision:

Short-term rental pros

These are some of the best reasons to choose a short-term rental:

• More profits: Short-term renters pay a nightly fee, which means you can make more by renting for a short period. For example, if you rent an apartment for $100 per night, you’ll make $700 per week, while a long-term tenant may only pay $1,200 for the whole month. 
• Less wear and tear: When tenants are only staying in your unit for a short time, you can keep the property in better shape. It’s easier to do maintenance and check up on a place when it’s empty than when it’s occupied and short-term tenants come and go frequently.
• Flexibility: If you want a chance to stay in your property when you’re in the area, then renting it short-term can provide the flexibility you need to make this happen. You can choose when to rent and for how long.
• Tax benefits: There are many tax deductions and benefits landlords get access to through real estate. In addition, some states offer extra benefits.

Short-term rental cons

Like most things, operating a short-term rental has its downsides:

• Unstable income: Although you can potentially make a lot of money with a short-term rental property, it can be seasonal or sporadically occupied. This makes rental income unstable and unreliable.
• More time intensive: Because your tenants may leave the property every few days or once a week, you’ll have to ensure the location is thoroughly cleaned and restocked every time new tenants come in. So you’ll spend more time doing this yourself or seeing that someone else does. 
• No background check: When you rent your house in the short term, you don’t have the opportunity to do a background check on the renter. Most platforms where you rent your property let you see what another renter thought of a tenant, but these don’t provide the same details that a background check does.
• More regulation: It’s important that you make sure your HOA or local jurisdiction allows short-term rentals, as some don’t. Renters coming and going frequently can annoy the neighboring properties as well, so you’ll need to keep them in mind when making your decision.

Long-term rental pros

Going with a long-term rental has the following pros:

• Consistent income: Even though you can charge more for a short-term rental, the steady income of a long-term rental is appealing. You can expect the same amount of money each month for the duration of the lease agreement.
• Background check: Unlike short-term renters, you can look into the rental and credit history of a potential tenant by renting long-term. This gives you more control over who stays at your property.
• No utilities: Typically, landlords expect their tenants to pay their own utility costs for electricity, gas, trash, and internet. You won’t have to worry about paying these extra costs like you would with a short-term rental property.

Long-term rental cons

A stable income is great, but you should also be aware of the cons of having long-term renters:

• Higher turnover cost: Despite the fact that long-term tenants stay longer, the cost to fix a property when they leave can be higher. After a long-term tenant, you may have to paint, replace the carpet, or fix more serious repairs.
• Eviction hassles: If the tenant turns out to be more trouble than they’re worth, you may have to evict them. The eviction process can take a couple of months, and during this time, you’ll have a tenant who may not be paying rent or could be causing more problems.
• No flexibility: With a long-term renter in your house, you won’t have as much opportunity to use the property, if any.

Step 2: Finding a Property Manager

A question you’ll have to ask yourself: Should you manage the property yourself or hire a property manager? Generally, a property manager will charge roughly 10% of the monthly rent plus 50% of the first month’s rent when a new tenant moves in.

In exchange for this fee, a property manager will do a lot. These tasks include:

• Advertise for finding new tenants
• Process rental applications
• Sign the rental lease
• Collect rent
• Keep track of the financials
• Schedule maintenance repairs
• Issue legal notices
• Enforce rental policies
• Understand and navigate landlord-tenant laws
• File evictions

Step 3: Finding Rental Tenants

When it comes to attracting tenants to rent your house, marketing is key. You will want to reach as many potential tenants as possible so that you have a large pool to choose from. Here are some rental property marketing tips:

• Online Listing Sites: You can list your property on Zillow or Trulia. Then it will be displayed organically when potential tenants search for properties. You’ll have to do the legwork of getting good property photos and a strong description to stand out, but it’ll be worth it.
• Craigslist: This is one of the easiest places to find tenants. Pro tip: Don’t list the address. Just give a general vicinity for safety purposes. 
• Yard signs: One of the oldest but most successful ways to market your rental is with a simple “For Rent” sign in the yard. The biggest drawback to a sign, however, is that it notifies potential wrongdoers that the home is vacant.

Prescreening rental applicants

When you receive a call or message from a prospective tenant, always prescreen before meeting them in person. The easiest way to do this is by setting rental criteria and explaining those criteria over the phone. My criteria prior to a typical rental application process look like this:

• Gross monthly income must equal approximately three times or more the monthly rent.
• Must have a favorable credit score.
• Employment — with acceptable proof of the required monthly income.
• Good references from all previous landlords.
• Agree to the total number of occupants allowed, such as a two per bedroom per state law.

You can read this list over the phone to the prospective rental tenant and ask them if they meet the qualifications you desire. If they don’t, renting the home to them may be a mistake, as it will waste your time screening them further and booking a showing.

Step 4: Estimating Income and Expenses

Knowing your estimated income and expenses is vital when you decide to rent your house. The basic principle for estimating your income is to subtract the income from the expenses, which gives you the cash flow, or this equation:

Cash flow = monthly income – monthly expenses

Your total income and expenses might be affected by:

• How much you pay a property management company.
• How much you’re collecting in rent.
• How much you pay in taxes.
• How often the property is vacant.
• How old the house is.

You’ll want to take all these things into account when budgeting for your rental. Many people often misjudge the costs of repairs they’ll have to make and overestimate the amount they’ll get in rent, which can be detrimental. An accurate analysis of your cash flow means you can set realistic goals for your budget. It can be best to underestimate the rent price and overestimate repair and upkeep costs to ensure you’re within your budget. Here are some tips for creating a financial plan for your rental property:

Determine how much you should charge for rent

You can’t arbitrarily decide what rent you want to charge — the market makes that decision. Your job is to determine the fair market rent for your house by doing research. Generally, your house will rent for about the same amount as other rental properties with a similar location, size, and condition. Start by searching for similar properties on Craigslist and Zillow.

For the most detailed information about a property’s fair market rent, input the address into our rent estimator. We’ll provide data for the property and properties like it. This tool looks for the most similar properties in your area and estimates the rent for your property based on those comps.

Also, consider:

• Driving around and looking for “For Rent” signs in the area.
• Calling property management companies and getting quotes.
• Asking other local landlords and networking.
• Browsing local newspapers for similar properties.

Decide on the security deposit

A security deposit is a sum of money paid by a tenant to ensure they fulfill the terms of their lease. Remember, though. This is a deposit, not a fee. This money should be held in a separate bank account and returned to the rental tenant when they move out, less any damages that need to be repaired.

Many states restrict the amount you can charge, so make sure to check any state and local laws to ensure you comply. I typically charge the equivalent of the monthly rent for a security deposit, though I may charge more than that if the rental tenant has anything in their background that worries me.

Step 5: Completing the Rental Application Process

Always give an application to each prospective tenant who is interested in renting your home, even if you are not interested in renting to them. After all, you don’t want to violate Fair Housing laws. The actual rental application should include a variety of information — at a minimum:

• Names of all potential renters
• Date of birth
• Social security number
• Phone number
• Alternate phone number
• Previous addresses (last five years)
• Current employer (name, hire date, income, contact info)
• Past employers (name, hire date, income, contact info)
• Emergency contact information
• Release of information statement
• Signature for all rental tenants

Always require an application fee. This should cover the cost of the background check. However, before bothering with the components of screening that cost you money, first, scan the rental application to ensure candidates meet your initial criteria.

Step 6: Conducting Background and Credit Checks

There are various tenant screening sources you can use to run a background or credit check on a rental tenant. Many property management apps offer built-in screening tools, too.

Before digging into the screening data, you need to decide what kind of background or credit score you’ll allow. That’s largely dependent on your location and the strength of your real estate market. The things to look at closely are:

• Felonies
• Prior evictions filed
• Prior evictions carried out
• Bankruptcy
• Judgments
• Other criminal or bad financial histories

Verifying income and checking credit history

Your rental application should include a “release of information” signature, which allows you to check up on their claims. Start with their job. The rental application should include the name and phone number of their current employer, so call and speak with the manager, owner, or human resources manager. Many times, you will be required to fax over the release-of-information signature.

Then, the important questions to ask are:

• How much do the renters currently earn?
• How long have the renters worked there?
• Is this job considered temporary?

Next, call their previous landlords from the past five years. When talking with previous landlords, consider asking the following questions:

• How long did the tenant rent from you?
• What was their monthly rent?
• Did the tenant give proper notice when vacating?
• Was the tenant refunded their security deposit?
• Would you rent to this tenant again?

Check out our full list of questions to ask tenant references for even more.

Accepting or denying a rental applicant

To avoid discrimination complaints, always process rental applications on a first-come, first-served basis. Process each rental application until you discover the applicant does not qualify.

When you deny a rental applicant, it is important that you clearly document your reasons for why you are denying the renter to avoid discrimination complaints. Always inform the rental tenant with written notice.

When you find a rental applicant who meets all of your requirements, you can verbally let them know that they are approved.

Step 7: Completing Rental Lease Agreements

You can get a state-specific lease agreement that details landlord-tenant laws from BiggerPockets’ lawyer-reviewed lease library, which includes forms for all 50 states.

Most landlords choose a one-year lease in an effort to keep their tenants in the rental home as long as possible, minimizing turnover. While rental agreements generally vary in length and content, most leases contain the following information:

• Names of rental tenants
• Address of the rental property
• Lease agreement term length
• Monthly rent amount
• Security deposit amount
• Late fee definition, penalties, and fees
• Landlord-tenant laws
• A move-in condition report
• Rental policies
• Provisions for or against pets, utilities, smoking, and more

Signing the lease agreement

Go through what’s included in the lease agreement ahead of time and mark all the areas that require a signature or initials with Post-It Notes or a highlighter. That way, nothing will be forgotten or missed. When you meet with the rental tenant, walk them through each provision in the lease step-by-step, and ask them to sign as you go. This may be time-consuming, but it will help protect you months down the road when the tenant says, “I didn’t know that.”

Step 8: Conducting Inspections

Inspecting a property is necessary when you own a rental. Here’s what you need to know about inspecting a house and when it’s required:

Before move-in

After the monthly rent and security deposit have been paid and the lease agreement has been signed, it’s now important to do one final thing before handing over the keys to the renter: the move-in condition report. 

This is simply a paper that the tenant signs documenting, in detail, the condition of the rental property upon taking possession. Allow the renter to take some time walking through the rental property and inspecting it. Encourage them to take notes of the condition of each room. Also, consider taking photos or a video of the property before handing over the keys. This will be evidence of the property’s condition in the future when the rental tenant moves out.

In addition, consider requiring that tenants carry renters insurance. Renters insurance is akin to homeowners insurance, but it will protect the renter’s stuff should the unfortunate happen, such as fire and theft.

After move-out

Once the tenant moves out of your rental property, you’ll need to inspect its condition. Long-term tenants should receive their deposit back at this time. After you look over the property, you can decide how much of the security deposit to return. You can deduct any repair costs for things you have to fix or replace based on your agreement. This is when you may need your move-in report and photographic evidence, as sometimes disputes over wear and tear can arise. 

Routine inspections

Conducting routine rental property inspections will be another reality for you. If you have a property management company that works for you, they’ll most likely take care of this. Those who are handling their own rental properties will need to plan on inspecting locations at intervals. How often you decide to do a routine inspection is up to you. It may depend on the renters, your preference, or the age of the house. On a routine inspection, you’ll want to look out for:

• More people living in the home than are on the rental agreement
• Pets that aren’t on the rental agreement
• Signs of water leaks or obvious damage to walls or doors
• General cleanliness of the house and yard
• Condition of the roof and flooring materials

The paperwork may be done, but your journey is just beginning. As a landlord, it is your responsibility to ensure monthly rent is paid on time, late fees are charged when needed, repairs are performed when required, and bookkeeping is kept up to date.

Conclusion

Renting your house out can be an incredible way to build long-term wealth and achieve financial freedom! By following the simple steps above, you’ll be well on your way to becoming a great landlord and providing quality housing to your tenants!

Remember, the market is constantly changing. To evaluate whether your property can stay profitable, use our rental property calculator!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.