A Five-Step Checklist For Turning Your Home Into A Rental Property

Post written by

David Friedman

Dave Friedman is Co-Founder and CEO of Knox Financial, the smart and frictionless way to turn a home into an investment property.

When I ask rental property owners how they first got into the business, a common response is they were moving out of their home, and instead of selling it, they decided to turn the home into a rental.

Often, this response is followed by a lengthy list of grievances about the obstacles they faced when turning their home into a rental, and what they wish they had known before starting the process.

If you’re considering moving out of your home and converting it into an investment property instead of selling it, these five steps can serve as a good starting point:  

1. Refinance For A Down Payment On Your Next Home

If you’re planning to purchase the next home you move into but don’t have sufficient funds to afford the down payment, you can explore many different mechanisms for using the equity you have in your current home. There are plenty of resources on how to leverage the equity in your home, but my most important advice is this: If you’re not experienced with refinancing, take the time to find an objective third party, like a financial planner, who will guide you through the process and put your best interests first. Also, once you’ve decided which type of refinancing method is right for you, compare a few different lenders. For instance, if you’re going to get a home equity loan, compare the home equity loan interest rates from at least a few banks.

2. Fix Anything That Needs Fixing

Unless you are an incredibly experienced builder, you will not be able to see everything that needs fixing in your home. For a few hundred dollars, you can hire a home inspector to visit your home and prepare a report on what needs doing. From there, you can use the report to get quotes from local contractors. This costs some money upfront, but think of it this way: If you do this work before tenants move in, not only will you avoid the unexpected tenant maintenance requests, but you’ll likely be able to avoid at least some of the costly maintenance that can come up when something becomes broken beyond repair.

3. Make Cosmetic Updates

When potential renters look at your unit, they don’t want to feel like they’ve been transported to the last decade. I’ve found that kitchens, in particular, can make or break a showing. If you have decades-old appliances, consider buying new ones before you put your home up for rent. If your wallpaper, paint color or carpet floors look like they're from the 1990s or earlier, consider investing in a refresh. These types of updates might be expensive, but remember, if the potential renters feel like the place they’re looking at is premium, they will be willing to pay a premium price for it.

4. Select An Insurance Provider

When you rent out your home, regular homeowners insurance will no longer be sufficient. You’ll need landlord insurance. From my experience as a landlord, I’ve found that getting insurance through a local agent is the way to go, as you get a more personalized experience. You’ll also likely get a better deal if you bundle your insurance with the company you’re already using for other insurances, like auto and homeowners.

5. Determine How Much Work You’ll Outsource

If you’re planning to manage the property by yourself, be prepared to spend at least three hours per week, on average, on unexpected maintenance, tenant requests, finances, rent collection, larger projects and other property management responsibilities. Make sure that your tenants have an emergency number that they can contact you at any time, day or night. If you decide to outsource some of the work of being a landlord — whether it’s your accounting, property maintenance or finding tenants — make sure that the vendors you’re hiring come highly recommended, have their interests aligned with yours and won’t nickel and dime you every time your tenants need the smallest service. It’s easy to see your margins disappear.

Once you get through these five steps, you’re ready to tackle the next set of tasks, like determining how much to charge for rent, deciding how to most effectively market your property to prospective tenants and putting in place a preventative maintenance schedule.

Forbes Real Estate Council is an invitation-only community for executives in the real estate industry. Do I qualify?
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When I ask rental property owners how they first got into the business, a common response is they were moving out of their home, and instead of selling it, they decided to turn the home into a rental.

Often, this response is followed by a lengthy list of grievances about the obstacles they faced when turning their home into a rental, and what they wish they had known before starting the process.

If you’re considering moving out of your home and converting it into an investment property instead of selling it, these five steps can serve as a good starting point:  

1. Refinance For A Down Payment On Your Next Home

If you’re planning to purchase the next home you move into but don’t have sufficient funds to afford the down payment, you can explore many different mechanisms for using the equity you have in your current home. There are plenty of resources on how to leverage the equity in your home, but my most important advice is this: If you’re not experienced with refinancing, take the time to find an objective third party, like a financial planner, who will guide you through the process and put your best interests first. Also, once you’ve decided which type of refinancing method is right for you, compare a few different lenders. For instance, if you’re going to get a home equity loan, compare the home equity loan interest rates from at least a few banks.

2. Fix Anything That Needs Fixing

Unless you are an incredibly experienced builder, you will not be able to see everything that needs fixing in your home. For a few hundred dollars, you can hire a home inspector to visit your home and prepare a report on what needs doing. From there, you can use the report to get quotes from local contractors. This costs some money upfront, but think of it this way: If you do this work before tenants move in, not only will you avoid the unexpected tenant maintenance requests, but you’ll likely be able to avoid at least some of the costly maintenance that can come up when something becomes broken beyond repair.

3. Make Cosmetic Updates

When potential renters look at your unit, they don’t want to feel like they’ve been transported to the last decade. I’ve found that kitchens, in particular, can make or break a showing. If you have decades-old appliances, consider buying new ones before you put your home up for rent. If your wallpaper, paint color or carpet floors look like they're from the 1990s or earlier, consider investing in a refresh. These types of updates might be expensive, but remember, if the potential renters feel like the place they’re looking at is premium, they will be willing to pay a premium price for it.

4. Select An Insurance Provider

When you rent out your home, regular homeowners insurance will no longer be sufficient. You’ll need landlord insurance. From my experience as a landlord, I’ve found that getting insurance through a local agent is the way to go, as you get a more personalized experience. You’ll also likely get a better deal if you bundle your insurance with the company you’re already using for other insurances, like auto and homeowners.

5. Determine How Much Work You’ll Outsource

If you’re planning to manage the property by yourself, be prepared to spend at least three hours per week, on average, on unexpected maintenance, tenant requests, finances, rent collection, larger projects and other property management responsibilities. Make sure that your tenants have an emergency number that they can contact you at any time, day or night. If you decide to outsource some of the work of being a landlord — whether it’s your accounting, property maintenance or finding tenants — make sure that the vendors you’re hiring come highly recommended, have their interests aligned with yours and won’t nickel and dime you every time your tenants need the smallest service. It’s easy to see your margins disappear.

Once you get through these five steps, you’re ready to tackle the next set of tasks, like determining how much to charge for rent, deciding how to most effectively market your property to prospective tenants and putting in place a preventative maintenance schedule.

Forbes Real Estate Council is an invitation-only community for executives in the real estate industry. Do I qualify?

Dave Friedman is Co-Founder and CEO of Knox Financial, the smart and frictionless way to turn a home into an investment property.