How to Get Started in an Owner-Occupied Rental Business
Getting your foot on the first rung of the housing ladder or moving up a step can be tough, particularly if you're trying to buy at a time when mortgage lending is tight and prices seem out of reach. Renting out some of your property can help you cover your mortgage payments and perhaps make you a profit. If you're buying your first home, securing an interest-only rental mortgage could also allow you to build capital to invest in stand-alone rental property.
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Instructions
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Research the real estate market in the area you plan to buy in if you don't own a property. Look at the prices of property to buy and average rent levels for the type of accommodation you'll be able to let.
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Look into the cost of rental mortgages and work out how much you would need to earn in rent to cover your costs and turn a profit. Consider contacting a mortgage broker or using a price comparison website to get a good overview of the market. Rental mortgages are more expensive than a standard mortgage, but if you don't have the capital required to buy a property outright, you'll have no other choice. Most standard mortgages don't allow you rent out any of your home.
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Consider the chances of property prices going down and calculate where that would leave you. Although this is hard to predict, read up on the likelihood of the bottom falling out of the market. If the value of property falls drastically and rent prices go the same way, you could be left in negative equity and unable to cover your mortgage costs. There's also the chance that property prices and rent could skyrocket, but as with most investments, this is the chance you take.
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Secure a rental mortgage and buy a home that you think will appeal to the local rental market. Consider the demographics of the area you're buying in. If you live in a suburban commuter town, you may do well renting part of your home to a young couple with their first child. If you live close to a university, you could rent any spare rooms out to students.
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Decorate the property if need be. You'll get a better price for your rental rooms if they appear to be in good order.
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Advertise the rooms you have for sale. You could use an agent to market and manage your property, but you'll have to pay a fee or a percentage of your rent in return. Place advertisements for your accommodation in local classified listings and online.
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Draw up paperwork for your tenants to sign. You can hire an attorney to prepare a bespoke contract or buy a more generic agreement online. You should also screen any prospective tenants. Ask for at least two references from former landlords and proof of income.
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Contact your home insurer to inform it that you're renting out part of your home and who is living at your property.
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Declare your rental income to the Internal Revenue Service in your tax return. You may be able to offset your rental income against your mortgage payments, depending on your circumstances.
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References
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