Renting Out Your Home: A Beginner’s Ultimate Guide

You might have unused space in your home — a guest room that is rarely occupied, an unkempt basement filled with boxes, or even another property sitting idle. While it’s easy to spot potential for the space, deciding to rent it out is where most people get stuck. At the end of the day, it’s your home, a space filled with memories and attachments. The idea of welcoming strangers into this space can feel overwhelming.

To top it off, what’s more worrisome are the practical requirements that come to light, such as permits, zoning laws, and taxation. Additionally, safety measures such as ensuring tenants are covered by the insurance plan and finding trustworthy tenants can be a lot. It’s completely natural to worry about the “what-ifs”. You may find yourself asking questions like “How much can I rent my house for?” or “How do I start?“, “Is it worth it?” These doubts can make it easier to put off the decision altogether.

On the other hand, renting out your space not only covers costs but can also provide extra savings, help pay off your mortgage, and lead to financial freedom. This guide is designed to provide you with practical steps to renting out and transforming your space into the profits you foresee.

By the end, you’ll know how to rent your house with confidence and gain greater financial freedom. Explore these steps to rent out in an innovative, safe, and profitable way below.

Why you might want to rent out your home

Today’s uncertain economy creates a challenging atmosphere for homeowners looking to maximize their property value. Renting out your home can be a great strategy to achieve this goal!

Zillow’s recent consumer housing report found that 66% of homeowners aged 18 and above have thought of renting out their home, with a steady rise in the number of homeowners renting out since 2021:

47% in 2021
53% in 2022
64% in 2023
66% in 2024

For the majority, it’s about diversifying income generation, but other motives include:

Selling flexibility. Renting out your home buys time for a better evaluation before opting to sell.
Tax benefits. When homeowners let out their property, they may be eligible for tax deductions depending on government regulations. These deductions may be for repairs, insurance, or mortgage interest.
Lifestyle preferences. Many homeowners enjoy the idea of hosting, meeting new people, and allowing individuals to rent spaces when the market is tight.
Buffer during relocation. Relocation can occur randomly, and it’s hard to sell property in these situations. In that case, renting out generates income and also keeps the ownership intact.
Market opportunity. Low vacancy rate results in high demand for rental units. Renting out at this time may increase the potential for steady occupancy.

Additionally, the U.S. Census Bureau found that rental housing vacancy rates have remained very low (5% in 1985 and 5.8% in 2022) over 37 years. This suggests that there is a limited number of properties available for rent, making it an optimal opportunity for homeowners to consider renting out for the first time.

If you have ever thought about renting out that extra space, now is the time to explore your options!

The section below shows you how to do just that.

The first steps of renting out your home

Renting out a house for the first time involves more than posting advertisements. Planning for financials, understanding legalities, and staging are all crucial to the outcome.

Here are the very first steps you can take to start your rental journey.

Determine if your home can be legally rented

Ensure you have crossed out all the dots with local legal requirements; this prevents future challenges with the tenant. Specifically, investigate whether renting out your space is permitted by law.

Consider gaining a better understanding of zoning laws, city ordinances, and rules established by the homeowners’ association regarding the rental of your property. For instance, neighborhoods may limit the number of short-term rentals permitted. Some homeowner associations prohibit subletting or have a restriction on the number of unrelated tenants allowed.

Additionally, ensure that all mandated permits are in place, such as a short-term rental permit, rental license, no-objection certificate, and occupancy certificate.

Likewise, homeowners are responsible for ensuring that the property is safe for renters to move into. This requires multiple levels of inspections, which must include plumbing, electrical, and structural checks of the property. This also ensures documentation of the current condition and any repairs done to help future maintenance of the property.

Failing to follow this step could lead to serious consequences. Homeowners who rent out property without obtaining the necessary approvals may face substantial fines or lawsuits from neighbors or the HOA, which can result in the eviction of tenants.

Create a solid rental agreement

A rental agreement, also referred to as a tenancy agreement, is a legal document that outlines the responsibilities and rights of both the landlord and the tenant. A written lease serves as a safety net for both parties involved.

There are key requirements that must be highlighted in a rental agreement, which are:

Rent payments. How much is the monthly rent, and when is the due date? Is there a grace period for monthly rent? Are there any consequences if the fees are not paid on time?
Security deposits. What are the security deposit details? What is the method of payment for the monthly rent – cheque, online transfer, or bank transfer?
Duration. How long is the duration of the lease?
House rules. For example, are pets allowed, are there smoking policies, and what are the noise policies? What happens in case of any maintenance, damage, or repairs? Who pays for utilities?
Termination or eviction. How and what to do in the case of termination of the lease or eviction? Highlight terms of early termination of lease, responsibilities of the tenant and landlord toward the property.
Renewal. What are the terms for renewal of the lease?

The rental agreement is a must; without it, the tenant and landlord often end up relying on verbal promises, which can escalate into misunderstandings or disagreements.

A good starting point would be to draft a rental agreement using a template and then have a lawyer review it for accuracy and completeness.

Calculate potential rental income and expenses

A common question is “How much can I rent my house for?” The answer depends on the current market and realistic cost estimation.

Research market rates. Conduct market research by comparing similar properties across local rental listings to identify trends and patterns. These price points act as a benchmark for your property.
Factor in all expenses. When estimating the rental price, be sure to account for factors such as utilities, maintenance and repairs, vacancy periods, insurance upgrades, and property management fees. All of these expenses should also be included as part of the rent, as they are overhead costs to the landlord.
Balance the rental income and incurred costs. Ensure that the rental income covers the expenses that the house may incur. Using tools such as spreadsheets, online calculators, or accounts can aid in estimating net rental income. Financial planning should ensure good profits and minimize overall losses.

Prepare your home for tenants

A clean, well-decorated home invites good tenants but also permits you to charge fair rent for all the amenities that you are including in your rental agreement. The leasing agreement can consist of furniture, decor, and home appliances for the tenants to use during their stay.

When preparing to rent out your home, consider doing the following things:

Deep cleaning the entire house. Specific areas to consider for deep cleaning include the bathroom, kitchen, and any carpeting.
Repairing any existing damage in the property. For example, damaged flooring, wallpaper, or paint should be repaired. Also consider professional cleaning services to ensure all showings are clean and dust-free.
Adding vital furnishings. Ensure that all essential furnishings outlined in the leasing agreement are available and are in good condition for use.
Ensuring all privacy and security measures are in place. Homeowners should ensure that all locks are replaced before tenants gain access. Smoke and carbon monoxide detectors must be in good condition. All windows should be secured, and local emergency contacts should be provided.
Conducting home inspections. Ensure that all plumbing, electrical systems, and appliances are inspected and in good functional condition.
Setting house rules. At this stage, the primary focus was on defining shared and private areas in multi-unit homes. Additionally, it is essential to inform tenants of the policies regarding garbage, noise, smoking, and pets.

Beyond these basics, small renovations can make a big difference in your home. Staging your house refers to the process of adding furniture and decor arranged in an aesthetically appealing manner to attract potential tenants.

For example, replacing light fixtures can bring a unique vibe to specific spaces in your home, creating a welcoming atmosphere. Ultimately, making these changes to your home can enhance its appeal to potential tenants.

Screen tenants effectively

Screening tenants is a crucial step to finding the perfect tenant. The screening process helps prevent late payments and property damage and ensures a smooth experience for both parties.

Here are some simple steps you can follow:

Create a rental application. Use a rental application to collect basic information, such as employment history, income, and previous addresses, which can also include references.
Run a background check. Look for a history of eviction, criminal history, and other inconsistencies. Various platforms and applications can help you conduct a thorough background check.
Check credit reports. Running a credit check helps determine the applicant’s capacity to pay the rent consistently. A good credit history reflects financial responsibility and stability.
Contact the references provided. Have a quick chat with the references provided, which helps confirm the tenant’s conduct.
Interview the tenant. A brief conversation with the tenant can help assess whether they are a good fit for the property, taking into account the rules and expectations outlined in the lease.
Watch out for any red flags. Be alert to whether the tenant is rushing the process, if there are any incomplete sections in the application, if the income is unverifiable, or if the references do not check out.
Stay compliant. Always abide by the fair housing laws and anti-discriminatory rules put in place. Keep your screening standardised for each potential tenant.

While it may be tempting to skip the screening process, taking the time to weed out bad contenders patiently will give you peace of mind.

Understand taxes and insurance updates

Rental income, like other types of income, is taxable by the government.

This means that rental income gets added to your overall earnings, which is then subject to income tax. Although rental income is taxable, it’s also eligible for certain tax deductions, including utilities, maintenance, insurance premiums, mortgage interest, and more.

Here are some steps to ensure this process is manageable:

Keep detailed records. Track all rental payments received and keep receipts for all repairs and property improvements. This is essential to claim any deductions.
Consult tax professionals. A certified tax professional can aid in understanding which deductions can be applied in your state or country.
Update your insurance. Converse with your insurance provider to switch to a landlord insurance policy, as standard homeowner insurance won’t cover damages to property caused by tenants.
Check local requirements. Some areas may require a rental registration or proof of landlord insurance when you file for taxes. Therefore, double-check local requirements with your local housing authority or municipal office.
Plan for tax season. Set aside a part of your rental income every month so that you aren’t caught off guard with any unplanned tax liabilities.

By taking these steps early in the process, you’ll avoid any expensive surprises and protect your property thoroughly with the proper financial and legal safeguards.

In conclusion

Renting out your house can feel overwhelming.

However, breaking down the process into manageable steps makes it more empowering at an individual level.

This guide covers the essentials before you start your journey as a landlord, from legal requirements and leasing agreements to updating your landlord insurance. Once you successfully check these boxes, you’re set to welcome your first tenant.

Take the first step today — look up local rental regulations and explore if your property has the potential to generate income for you.

If you want to see more resources on property investment, check out the Household Management Science Labs. The lab uses the research of the Institute for Life Management Science to produce courses, certifications, podcasts, videos, and other tools. Visit the Household Management Science Labs today.

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Aishwarya Chitagudigi