StreamLoan focuses primarily on the processes involved with buying homes and handling mortgages. But today, a lot of homeowners are exploring the idea of using their properties as rental assets, and in some cases even turning this action into a side business. Some are finding ways to generate significant income by renting out properties on platforms like Airbnb, and this is naturally leading others to want to give it a try. So for those who may be looking into home ownership and considering rental potential— or perhaps those who have recently secured homes and are thinking of the same — we are listing some of the important questions to ask before you start renting out.
1. Can you rent out a mortgaged home?
There is nothing that explicitly precludes you from renting out any home that is still under a mortgage agreement. However, the question of notifying your mortgage company if you plan on renting out the property is a little bit more complex. Certain companies will take issues with the idea, or may have specific qualifications in mind (such as that you occupy the home personally for a year before renting it out). For this reason, it’s generally a good idea to let your mortgage company know about your plans. That said, short-term rentals (say, if you want to let someone use your home on certain weekends, or while you’re away for a summer) are unlikely to raise any alarms.
2. Which platform should you use?
We mentioned Airbnb above, and this is certainly the rental platform that has most helped to popularize the idea of using a home as a source of income. But it’s not alone in the market. Plenty of homeowners also use platforms like HomeAway, VRBO, Booking, and Flipkey (to name a few). In fact, there are plenty of properties that are listed on multiple platforms within that selection. The truth of the matter is ultimately that no one company can definitively claim superiority in the category. The best idea here is to set aside some time for research, compare the options, and decide which one speaks to you most.
3. Should you form a real business?
Renting out your home is something that’s relatively easy to do as a sort of casual, independent venture, with your chosen platform handling much of the business side of things. At the same time though, if you plan on making this a regular practice, there may be some reasons to consider setting up your rental operation as a registered business such as a sole proprietorship or Limited Liability Company. A sole proprietorship is the easiest option, and in some cases most appropriate for an individual with a small operation. On the other hand, this arrangement does not separate the individual from the business, whereas that separation is one of the benefits of setting up an official LLC. Specifically, an LLC makes your business a separate entity, so much so that your personal assets aren’t tied to business-related liabilities. This can be an appealing notion for those renting out property on a regular basis.
4. What will your added costs be?
Before you jump into business renting out a property in the first place, it’s a good idea to sit down and go over the added costs this kind of venture will bring about. Will it cost money to list your property on the platform of your choice? Will you need additional insurance or a special fund on hand to manage repairs? Are there going to be regular cleaning costs following rentals? If you’re planning on renting space regularly, these kinds of costs — together with your mortgage — can make your home fairly expensive to manage. You’ll want to run the numbers and make sure that you can offset the costs with the actual business. One suggestion here…get a tech forward property management firm to assist, such as our friends at Doorstead, or Zeus Living, who do everything from screening tenants, to signing leases, to collecting payments, and fixing routing or one time maintenance items.
5. Can you streamline your process?
Last but not least, you’ll want to look into ways to streamline the process of running a rental business, so that you can get the most out of it with the least effort or hassle. For this, we’d refer you to some of the trends in mortgage technology that we’ve been seeing of late — some of which provide simple but helpful insight into how to handle property management in 2020 and beyond. For example, setting your listing up to manage from your phone, organizing easy communication channels with prospective renters, and organizing your work time are all clear, straightforward steps you can take to make the whole operation run more smoothly.
The decision to rent out your own home as a side business is a bold one, and one that you should consider carefully. With more people trying this these days though, it can be something to give some real thought towards. Answering questions like these will help you figure out if it’s worth the effort, and if you can design the operation in a way that will be manageable and profitable. Have fun with the process and happy renting!