What to Know Before Renting a Home to a Tenant

Renting out a property is a truly lucrative way to make the most of an investment. Not only does it provide an additional source of income, but it also means that the property won't sit empty. Someone will be there to notice if the plumbing cuts out or an appliance is starting to flicker on and off for no apparent reason. However, there are a few caveats to renting that all owners should know before they start looking for the perfect tenant.

For informational purposes only. Always consult with an attorney and a certified tax expert before proceeding with any real estate transaction.

Learn the Laws

The laws for renting to tenants vary widely depending on where the property is located. If the home is under the jurisdiction of a Homeowners Association (an HOA), owners may not even be allowed to rent to tenants at all. Some rules favor the owners, allowing them to evict people with little to no notice whenever they choose. Other regulations highly favor the tenant, making it nearly impossible to remove them under any circumstances. Once an owner has a better idea of what the law is, they'll have an easier time deciding if renting is worth the risk.

Consider the Tenant

Owners aren't allowed to discriminate against tenants based on the following factors below. However, depending on the localtion and state where the property is loctaed, there could be additional protected classes such as sexual orientation, military record, etc. Make sure of the rental and discrimination laws before renting to a tenant:

• Sex
• Ethnicity
• Religion
• Disability
• Number of children

However, this doesn't mean that landlords don't have plenty of discretion when it comes to who they rent to. One way to determine a person's character is to look at their credit score. A poor credit score doesn't necessarily mean that a tenant won't be able to pay their rent, but it does give some insight into their priorities and responsibility.

Landlords may, in most cases, also ask tenants about their total debt-to-income ratio. This percentage adds up all tenant debt, including car loans, student loans, child support, and credit card debt, and divides it by their total income. If a tenant has a debt-to-income ratio of more than 50%, it may be difficult for the tenant to pay for rent for the home in Bartlett if they encounter an emergency situation (e.g., major car repair, job loss, etc.).

Past History

If allowed in the area where the property is located, a landlord might also be able to check their rental history and thie criminal background. Contact the tenant's past landlords, character references, and even employer. If the person can't provide any of these references, or if it seems like they're providing friends and family as their contacts, this could be a sign that the tenant has been unreliable in the past. If they switch jobs every month, it could be a sign that the tenant isn't very stable. However, landlords should also be careful about how they investigate. Certain states may not allow a landlord to discriminate based on criminal background.

Finally, consider how many people will be moving into the property. While a landlord can't discriminate based on family size, they also shouldn't be renting a two-bedroom home to a 6-person family. Check local laws to see what the limits are per square footage. Otherwise, consider how the plumbing, wiring, and flooring will be affected if additional tenants live there.

Whether it's in the form of a lawsuit or a broken sink, tenants have the ability to make an owner's life difficult at best. There's no exact science for renting to a tenant, but there are ways an owner can limit an owner's chances of trouble down the line.

For informational purposes only. Always consult with a certified tax expert before proceeding with any real estate transaction.