About to List FIRST Rental, What Must I do First?

Question

Hey everyone, I'm brand new and my family and I will be moving out of our first home soon and are planning to rent it out.

Could someone give me a rundown of the things I want to have in place and squared away before we put the listing up, or is that something I should just DO now?

We're planning to move in April.

Thanks!

Adrienne Green · Answer

@Carter Mahnke first off, I'm going to assume that you've done the analysis and determined that renting it out is the best financial move.  While it can be great to rent out a former primary, I've done it myself, there's also the potential that selling it and redeploying the capital into a property purchased with the intention of being a rental property would yield greater returns.

If you do decide to rent this house out, be aware of if you've earned the primary residence capital gains tax exemption.  If so, you must sell it within 3 years to maintain that exemption.  So once you've rented for 2 years, you'll want to evaluate how much you're saving with that tax exemption, and determine if it's a better move to sell it or keep it.

With all of that out of the way, are you self managing or using a property manager?  If you are self managing, I would start with evaluating different online platforms that assist self managers: Hemlane, Realtor.com, etc.  If you are using a PM, start interviewing PMs.  The management choice you make will help guide you in what else you need to do to prepare.

Joe Norman · Answer

A few things to consider/do:

-Adrienne makes a great point about the capital gains exception for primary residences, reread that and factor it into your analysis

-What are your minimum criteria? Be sure to evenly apply them to all applicants to avoid the perception of Fair Housing violations

-How will you do credit/criminal/eviction screening?

-How will tenant's apply? Do you have a paper application or will you be using a website?

-What is your pet policy?

-Do you have a lease agreement?

-Does your state/municipality require a Rental License?

-Was the house built in 1978 or earlier? If so what are the requirements for lead paint testing?

-How will you accept rent payments?

-Does your state require a separate account for holding security deposits?

-Adrienne makes a great point about the capital gains exception for primary residences, reread that and factor it into your analysis

Carter Mahnke · Answer

Thank everyone for the helpful replies! Lots of questions I need to solidify answers to. Exactly what I needed.

Adrienne, I've done the analysis and it should be a solid cash flowing deal. We've owned the home for 5 years so I got in at 4.7%. The mortgage is $1000/mo and comps are renting in the $1550 range. I've got about $85K of equity currently that I could access. I considered a HELOC to help finance a second deal, but there is certainly the chance I could get an investment with even more potential by selling and accessing that amount in full, just feels so much more accessible to rent what I've already got this first time learning the ropes.

I'll be honest, I have never heard of the tax exemption you mentioned, and after reading the description on the IRS page, I still don't understand how that comes into play for me. I'll do some research.

I'm planning to manage myself, so it seems that getting a good software platform set up would be very helpful moving forward.

For a little more background, my family will be moving in with my parents for a year or so while we get started renting (while helping them with maintenance on their own home) which will give me a focused time to save up more capital.

Allan Smith · Answer

What is your process for screening tenants? I'll give you a hint, it starts with how you word the listing description. How do tenants apply? Will they fill out an application or text or call you? How will you handle showings? Are they in person or are they self showings? Are you going to be using software to collect rent? If so, a lot of this is all done through the software and begins to fill in that big picture of how this is going to work for you. What are your application requirements for tenants you will reject without thinking twice in Tennessee will allow to apply? How much do you want to rent the unit for? How much will your security deposit be?

About to List FIRST Rental, What Must I do First?

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