Should I turn my home into rental property?

What You Need to Know About Owning Rental Property

Owning rental property (also referred to as investment property) can provide some fantastic benefits, but it’s not for everyone. This post will walk you through some of the most important things you need to consider before undertaking the responsibility of becoming a property investor and landlord.
Why would I want to turn my home into an investment property?

  • You’re ready to move to a new home, but your old one hasn’t sold. You can rent it out until you’re ready to put it on the market again—or maintain it as a long-term investment property.1
  • You’re looking to increase your income without taking on another job. Of course, being a landlord takes work, but you’re not beholden to an employer for this income.
  • ​You’ve inherited a home or you have a vacation home you no longer use. You may prefer to use this “extra” house to generate income rather than sell it. Or you may decide to move into that additional home, turning your primary residence into a rental property.

What financial and legal issues do I need to address?2

  • Your existing home may have a low interest rate. Generally, mortgage rates for a primary residence are lower than for a rental property, which is why some aspiring property investors turn their current home into a rental unit and buy a new primary residence at a favorable interest rate.

  • Check your original mortgage documents to determine what the residency requirements are. Certain loans require that you maintain the home as your primary residence for a specified number of years before you can turn it into an investment property. Failure to meet this requirement may be considered mortgage fraud.

  • Discuss income requirements with a mortgage professional. You want to be sure your finances can support two home loan payments. Depending on the situation, rent from your investment property may not qualify as income.

  • Consult a tax advisor about deductible expenses so you can maximize your financial return. Typically, you can only deduct mortgage interest and property taxes paid on your primary residence, but you may be able to deduct additional items for your rental home such as repairs to the property, homeowner association fees and depreciation.

  • Evaluate and adjust your homeowners’ insurance for both properties. Although you will no longer need to provide coverage for the rental home’s contents (since your personal belongings will not be there), you may need to increase your liability insurance to cover potential calamities related to your tenants.

  • Look into permits and local regulations. Some neighborhoods don’t allow rental properties within their community and require that homes be owner-occupied. Ask the Homeowners Association for its guidelines. In addition, most cities require a permit for a home to serve as a rental unit. The permit usually has a low fee and is issued after a government inspector evaluates the building for health and safety hazards such as electrical, HVAC and exit paths.

What else do I need to know?

  • Calculate how much you need to charge to make a profit on your fixed and variable expenses. Include ongoing repairs and maintenance in your estimation. After doing that, compare your proposed monthly rental amount to similar properties in your area and adjust if needed. If comparable rates are lower, then you may want to re-think your plan to rent out the home or decide how to justify your higher asking amount.

  • Determine what work needs to be done to get the property renter-ready—and decide if you have the willingness to make these updates. This could include something as simple as adding a fresh coat of paint to issues as complex as rewiring the house to meet city codes.

  • Work out the nitty gritty details of a rental contract (also called a lease agreement). Either use an online source like LegalZoom or consult an attorney for guidance. This is a critical step to increase the odds of this being a successful venture.

  • Decide if you want to be a hands-on landlord. Depending on your schedule and lifestyle, you may prefer to hire a management company to handle lease agreements, rent collection, repair needs, tenant complaints, problem renters and potential evictions. Typically, a property management company will handle these issues for you at a rate of approximately 10% of the monthly rent.

Before jumping in, take some time to do your research and consult professionals to determine if this is the right opportunity for you. According to the U.S. Census Bureau, the rental vacancy rate in the second quarter 2017 was a reasonable 7.3 percent and rent rates continue to increase.
Turning your home into rental property can be an exciting, overwhelming and rewarding experience. Being an educated investor is necessary to steer it toward a positive endeavor.


1 Each homeowner’s situation is unique. Contact one of our mortgage professionals discuss your circumstances and goals before making a decision.

2 This blog post is being provided for the purpose of general education, but should not be construed as legal, financial or tax advice. Please consult the appropriate advisor(s) for information that fits your individual needs



- By Lauren Howey, Apr 16, 2019