How to buy a second home and rent the first
For a second time homebuyer, the idea of turning your home into a rental property may seem like an easy process; however, it requires a lot more paperwork and preparation than you might think. Before you decide to rent out your current home, there are several steps you need to do first!
First, you need to decide if you can afford a second home mortgage.
The best way to help you gauge if you should take on buying a second home to rent is to sit down with a finance professional or banker. Often times, these types of professionals can give you a better idea of what your monthly costs will be, along with, other hidden costs of owning another home, which include closing costs, home insurance, taxes and other maintenance.
After you’ve got a better idea of what you need to begin buying a second home to rent, then it comes down to: will you qualify for a second home mortgage? If the answer is no, your decision is already made up for you. However, if your answer is yes, you’re just getting started on the long road to owning a rental property!
Second, you need to contact your HOA to know what they require for rental properties.
Each homeowners associations will have different regulations about the rental property and who can vacate the premises. It can come down to a number of things from how many homes in the neighborhood can be turned into rentals to what type of regulations need to be followed by renters.
A term you need to be aware of is “legitimate purposes.” In other words, it’s a justifiable way to set standards for your home in relation to the HOA’s criteria for rentals.
In some cases, these restrictions may be included in your lease agreement that is signed by the renter. In others it may be that the HOA gets to choose who rents the house by choosing applications from an application or background check.
Third, you need to find out how to be an effective landlord.
Setting yourself up for success as a landlord is to educate yourself on the business of rental properties.
Some things you’ll want to keep in mind are:
What kind of tenants are you looking for?
- Young couples
- College students
How will you target that desired demographic?
- Social media
- Word of mouth
- Personal connections
What can you charge for rent based on the location of your home?
Once you’ve nailed down what you are looking for in a tenant, it's time to plan out how you will set rules and stipulations for those renting your property through your leasing agreement.
Some rules and stipulations that could be in your contract are:
- How you will deal with damages caused by a tenant.
- How you will deal with late house payments or the eviction of a tenant.
- How you will promptly fix repairs that are not caused by the tenant.
After you have set the rules of your contract clearly, it’s time to begin getting your home ready for a potential renter!
Not only do homeowners earn a little extra cash by buying a second home to rent, but they also get the benefits of waiting to sell their home when the housing market is at its best!
If you are looking to rent out your current home, please contact the Fairfield Team and let us help you get started on the hunt for your second residence!