Turning primary residence (1st house) into a rental

[Cole Hafner]

First off I just want to say that this is a great community. I've been a reader/listener of the podcast, but this is my first time posting. 

My family and I have decided to turn our primary residence into a rental unit. The house is our first house, we bought it about 4.5 years ago when the market was low and have gained significant equity since then. We've outgrown the place and now it's time to move on. This is my first time being a landlord and I've got some questions:

1. What's the best approach for finding a tenant? Craigslist comes to mind, and I think Trulia has a service where I can post the place for free. Does anyone have experience finding tenants via these mediums? 

2. Ideally we would have a tenant in place before we vacate, so we're able to avoid any vacancies. Is it okay to show the place before we've moved all our stuff out? Is it common for tenants to agree to rent a place, say... a month or so in advance?

3. How much of the monthly rent should we set aside for maintenance? I've read 2% of the total property value, but that doesn't make sense to me. Say the market in your area is going up, up, up, so you save more and more each year. It's not like the price of a dishwasher keeps pace with the real estate market. 

4. Do we need to tell our mortgage company? My assumption is no, as they probably don't care as long as the mortgage continues to get paid.

5. Insurance and liability: do we need to change the insurance on the place when tenants come in? For example, we have a hot tub on the property. It's probably a bad idea to let the tenant use that. Because something happens that causes them personal injury or worse, couldn't we be held liable? I mean the hot tub would be great way to attract potential tenants, but if it's going to end in a lawsuit then it's certainly not worth it. Same with leaving a lawn mower, we could probably be held liable if they run over their foot or something, yeah?

Financials: We had the PMI dropped recently and as a result our mortgage is now only $1400/mo. We could probably rent the place out for $1700 - $1900 according to rentometer (Beaverton, OR). This would gain us anywhere from $300 - $500/mo. I'd be fine with saving all of it. Our goal isn't to make a profit on this place, it's really just to have someone else pay the mortgage for us and to start building wealth for our family. This is a whole new world for me, but something I've had in mind for a real long time and I'm really excited to start, I just need some guidance.

Any feedback or bits of wisdom would be greatly appreciated.

Thanks in advance.

[Thomas S.]

Before you consider renting you need to first determine if the property is suitable as a rental. Based on the limited information you have provided it will be a terrible fit as a rental. The rent is far too low to carry the costs and will be negative cash flow....major money pit. If you have equity that will further reduce the cash flow to the point of the property being a liability.

Since it is your primary residence and a very poor choice (on the surface) as a rental your best option would be to sell.

Personal homes rarely make good rental property investments.

Before you decide to get into this business you need to do much more research on our business regulations, state landlord tenant codes, insurance, taxes, legal lease contracts etc. This is not a fly by the seat of the pants business if you want to stay out of court and out of debt.

My opinion is that you would be farther ahead and safer to sell now since you have done zero research in advance to prepare to start your business.