Each state, county and city has regulations and requirements for owners planning to rent out their homes as investment properties. In Baltimore County, Maryland, rental houses must be registered according to county codes, such as the installation of a carbon monoxide alarm and the assignment of a legal agent. Maricopa County in Arizona requires owners to register information with the county assessor, receive the proper classification and designate a statutory agent who lives in Arizona. Federal regulations regarding the possible presence of lead-based paint and asbestos must also be disclosed to any potential tenants.
Many homeowners find themselves wishing for a new home, whether downsizing because of the children moving out or seeking a larger home for a growing family. Decreases in home values might prompt the need for homeowners to consider renting out their current home rather than selling it before purchasing a new home. Establishing a home as a rental property while searching for a new residence to purchase can be accomplished with careful coordination and financial planning.
Rental Laws and Regulations
Leases and Tenants
Before searching for prospective tenants, most landlords create a written lease or agreement stating the terms of the tenancy and establishing the amount of rent due. According to the California Department of Consumer Affairs, a periodic rental agreement serves as a month-to-month contract, while a lease usually involves multiple months. Decide which type of contract you prefer and include when the tenant must pay the rent and to whom, who pays the utility bills and other applicable details. A property manager may be hired to handle the paperwork and find potential tenants. Tenants may learn about the rental home through advertising, yard signs or word of mouth. If a screening service is used, it may provide landlords with credit history, criminal background and past payment history.
New Home Search
While establishing your home as a rental property, begin your search for a new home by meeting with a mortgage representative if a loan will be required and possibly an accountant to learn about the tax advantages and implications of owning a rental home. Pre-approval for a mortgage provides home buyers with bargaining power and peace of mind knowing how much they can comfortably afford, especially when owning two homes. Qualification rules might be stricter for borrowers with an existing home, but those with a strong credit history and assets should be approved. A real estate agent can help in the search for a new home and represent your interests during negotiations.
Closing and Moving
Once you have found a new home and agreed on terms and price, ensure that the closing date is in alignment with the move-in date for your prospective tenant. If your tenant hopes to move in quickly, you might need to request a shortened closing period from escrow and your lender. If the tenant can wait, allow extra time for closing on the new home to give yourself plenty of days to move out and prepare the rental home for its new occupant. If property managers and real estate agents are involved in the transactions, they should be of assistance for coordinating timelines for moving and closing.
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