Quite naturally, the primary reason that you – or any property owner – would rent out your property is in order to derive a stream of income. In fact; this has traditionally been more viable than most other ways of making money, and is capable of either putting extra money in your pocket, or liberating you altogether, in a financial sense. However, as with any endeavor, it is important to apprise yourself of the salient aspects of renting out property, so that you are positioned to succeed.
How Much Does the Average Property Rent For in the Area?
You may have some ideas of how much you want to make from property rental; but, before you get carried away with unfounded numbers – given the natural tendency to value your own property too highly – you need to figure out how much homes/apartments in your neighborhood are actually going for on the market.
Improper pricing is a common error that rental property owners make, which keeps their listing on the market far longer without any hits. To avoid this understandable mistake, check out your local newspapers and online sites to see what the classified sections quote for properties similar to your own.
How Much Money You Make Monthly
This determination, called your NOI (Net Operating Income) is important because of set-up costs associated with renting out property. Think of it as your disposable income; it cannot include operating costs for obvious reasons. Sit down and account for all your expenses – there are some powerful and very useful software programs that can make this a breeze – and subtract these from your income to come up with the NOI. You’ll see this figure repeatedly when gauging the viability of investment properties, and it is nice to have your own on hand for business decisions.
Property and Income Tax Awareness
Just like you pay property tax on your current home, you’ll also have to do this on your rental property. Some managers simply shuttle this cost into the price of the property that the tenant pays; additionally, however, you’ll have to pay income tax on the tenant’s paid rent. It is beneficial to understand how these tax costs translate specifically in your state, as there are certain state-specific deductions you may be able to make. Keep in mind that your overall rental property will also undergo depreciation year-after-year.
Understanding State-Specific Tenant Rights
There are different, effective methods you may use to incentivize the tenant to care for your property once she moves in. The exact nature of these methods, however, varies from state-to-state. In some states, you can take a damage deposit or a month’s rent at the time the agreement is signed; in others, you cannot. A quick reference to the state’s laws will apprise you of the relevant rules.
Lastly, find out what your state says about handling broken lease agreements and terms – to minimize your chances of being stuck with a broken lease and not many options.
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