First Timer - Preparing to rent out primary residence in 2 months

[Jackie Householder]

Hi Everyone, I am excited to be here, thank you for having me! My Husband and I are about to embark on our first adventure as landlords, renting out our primary residence next February. We have done the math and we believe the numbers work well. I have a few questions I will be researching this weekend and if any of you have advice, or can point me to specific resources, I would very much appreciate it. :)

We have a potential tenant coming for a viewing tomorrow, who is referenceable from a family friend. She would like to commit to a 2 or 3 year lease. Is this as great of a deal as I think? We do not have any intentions of selling this house even as the equity increases.

1. Taxes - Homesteading: we will be moving into our new primary residence in February. Is there a formula to estimate how much taxes on a home go up once it is no longer homesteaded?

2. Taxes - Rental Income: I am clueless as to where to start here. Any beginner 101 info as to what kind of business/account structure we need to track income and expenses?

3. Do you have a specific formula you use for Capital Expenses? I did a manual depreciation schedule and think it is around $450/month for a home purchased at 200k (now appraised at 270k). Does that seem right?

3 b. Should I be considering expenses such as roof replacement which we are fairly confident will come after the mortgage is paid off in 13 years and will be much easier to cash flow?

4. Has anyone used and have feedback on Zillow Rental Manager for Application, Monthly Rent Payment, etc.?

Thanks so much for any and all advice you are willing to give me!:)

[Sen A.]

@Jackie Householder

Hi Jackie, good luck on your new venture. On a 2 or 3 year lease, you are committed to an unknown tenant and to the rent price. By doing a standard 1 year lease (or 16 months because of feb. start date) you give yourself more flexibility. You can then move to a longer term lease if she pays on time and is generally a good tenant, stick with a year lease, or go month-to-month. You can also raise the rent and even find a new tenant. 

The lease agreement should be ironclad and specific to your state. Be as thorough as possible and supplement it with any relevant addenda such as your pet policy, room-by-room house condition, rental insurance waiver.  A lawyer can draft this up for you or you can go online. We've used ezlandlordforms.com

In calculating expenses vs rental income, we break it down monthly and include maintenance and cap-ex (we use 10%), vacancy (8%), property management (10%), utilities and PITI. This allows you to estimate how much cash flow you'll make while taking into account future big ticket items such as your roof. You can use the BP cash flow calculator or build your own spreadsheet.

It might be a good idea to meet with an investor-friendly CPA to answer some of your tax questions. It's really important to track and keep records of all your expenses. Not just of contractors, but gas receipts, food receipts, etc.

We are currently using Cozy.co to do background/credit checks, collect rent and record expenses. It's amazing and free.