How to rent a house in 10 steps [2022 edition] (2022)

Owning a rental property can be a good way to generate extra recurring revenue and develop wealth over the long term. But even with the demand for rental property as strong as it is today, there’s a lot more to renting out a house than putting up a sign, finding a tenant, and collecting the rent.

While there are numerous advantages to owning a rental property, it pays to follow a systematic approach to keep revenues strong and cash flowing. In this article, we’ll take an in-depth look at how to rent a house by following 10 simple steps.

Key takeaways

  • Thinking of a rental property as a business can attract a good tenant, keep rental income up, and keep expenses under control.
  • Before renting out a home, a landlord should reduce debt and increase savings to ensure the business starts on the right foot.
  • Determine the fair market rent, create a budget, screen for a good tenant, and track income and expenses.

When renting a house out, it helps to think of the rental property as a business. Landlords and tenants have obligations to one another, as well as to the neighbors and city.

To get your business off on the right foot, here’s how to rent a house in 10 steps.

1. Know yourself

There’s a tremendous amount of responsibility in being a landlord. Life often doesn’t go as expected, and owning a rental property is no exception. Some questions to consider before renting a home out include:

(Video) How to Buy a Rental Property in 4 Steps (2022 Edition)

  • What is your reason for renting a house – extra cash flow, long-term appreciation, tax benefits, or a combination?
  • Do you have what it takes to deal with tenants, vendors, and government regulators, or is it better to delegate to a local professional?
  • Is there extra capital available to pay the bills when expenses or vacancy are higher than expected?
  • Have you done the necessary prep work before buying a rental property, including paying off high-interest debt, fully funding retirement accounts, and creating a personal rainy day fund?

2. Know the law

Some of the local and federal laws to know include local and federal landlord-tenant laws, fair housing laws, fair credit reporting, zoning (especially important if the home will be a short-term rental, or STR), business and tax licensing requirements, and homeowner association (HOA) rules and regulations if the property is located in an HOA. Resources for learning more about laws to follow when renting a house include:

  • Stessa Tax Center: tax resources, how-to articles, and a TurboTax discount
  • Nolo.com: state landlord-tenant laws
  • Federal Fair Housing Act: list of protected classes for which a landlord may not screen

3. Decide how to manage property

Some investors who own rental property locally begin by doing their own management, while remote real estate investors usually decide to hire a local professional property manager.

One of the potential risks in self-managing a property is becoming emotionally attached to a tenant. When this occurs, rent can end up getting paid late and a tenant’s problems can become a landlord’s.

On the other hand, a good property manager will represent a landlord, negotiate a lease, take care of day-to-day details like tenant relations and maintenance, and ensure compliance with state landlord-tenant and fair housing laws.

4. Determine fair market rent

In order to turn a profit when renting out a house, annual income has to be greater than the expenses. While that may sound elementary, it can be far too easy to overestimate rental income and under budget for expenses.

Setting a rent price that’s too high may result in a property sitting vacant for a long time or frequent tenant turnover when renters leave for a more affordable place. On the flip side, a monthly rent that’s too low could result in leaving money on the table or even negative cash flow.

Three good, online tools to use to determine a fair market rent price are:

(Video) How To SUCCESSFULLY Buy Your First Rental Property in 2022 (6 Steps That Took Me From 0 - 20+ Units)

  • Stessa Rent Estimate is an optional, premium service for Stessa users. The service identifies opportunities to increase cash flow by determining a fair asking rent based on current listings, rent comparables, and market trends. Each Rent Estimate report is $19.99 and includes a detailed look at criteria like rental unit comps, median rental analysis, and rent trends by ZIP code, city, county, and state.
  • Rentometer: Use this tool to decide if the monthly rent price is too high, too low, or just right, based on similar properties in the same area.
  • Zillow Rental Manager: Rent Zestimate provides a starting price point for setting the rent, based on comparable homes and market trends.

5. Create a budget

Now it’s time to crunch the numbers and create an income and expense budget to make your rental property profitable. Having a pro forma budget also is a good way to identify areas where income can be increased or expenses can be decreased to improve positive cash flow.

Here’s a simple example of what an annual budget for an SFR property might look like:

Income

  • Rental income: $18,000
  • Other income (such as pet rent): $1,200
  • Total annual rental income: $19,200

Expenses

  • Property management: $1,536
  • Maintenance and repairs:$1,200
  • Pest control: $600
  • Insurance: $1,000
  • Property taxes: $2,500
  • Mortgage (principal and interest): $7,000
  • Total expenses: $13,836

Cash flow

  • Annual cash flow: $5,364

In this example, the home has a positive cash flow of $5,364 per year. However, it’s important to note that income and expenses aren’t always consistent. Sometimes it can take longer than expected to find a good tenant, or operating expenses can be higher than anticipated.

Stessa, a Roofstock company, provides a software option for creating a rental property pro forma budget with different income and expense scenarios. The program works for an unlimited number of SFRs, small multifamily properties, and short-term rentals. After signing up for a free account, head over to the Property Details page to put together a Pro Forma.

(Video) Short Term Rental Property Investing 101 - Getting Started in 10 Steps

6. Build a real estate team

Investing in real estate takes a team effort. Think of an investor as the coach and various members of a real estate team as players. Key members of a real estate investing team include:

  • Certified public accountant
  • Appraiser
  • Business partner/spouse
  • Contractors and handypersons
  • Insurance broker
  • Lawyer
  • Lender
  • Property manager
  • Real estate agent (investor-friendly)

How to rent a house in 10 steps [2022 edition] (1)

7. Get the home rent-ready

Perform an inspection by completing a pre-move-in checklist and making any needed updates and repairs. A rent-ready home that is available for immediate move-in increases the odds of finding a good tenant.

Tasks for getting a home ready to rent include repainting, detailed cleaning, landscaping, making sure all appliances are clean and in good working order, testing smoke detectors, servicing the heating, ventilation, and air conditioning (HVAC), and making repairs. A landlord also may consider hiring a plumber and electrician to ensure that everything is in good working order.

Obtaining landlord insurance is another part of making a home rent-ready. A landlord policy provides extra coverage for a rental property, such as landlord liability protection from claims made by a tenant or a tenant’s guest and personal property used in a rental, such as appliances owned by a landlord.

8. Advertise for and screen applicants

Some of the best ways to find a good tenant include print and social media advertising, a “For Rent” sign, an open house, and online rental listing services. Some of the best online rental listing websites include:

  • Apartments.com
  • Avail
  • Rent.com
  • Zillow Rental Manager
  • Zumper

It’s important to treat applicants fairly and equally when screening for the best tenant. General tenant screening steps to follow include:

(Video) How To Buy Good Short Term Rental Properties (Short Term Rental Tips)

  • Set minimum requirements, such as credit score and household income.
  • Require a completed rental application.
  • Run tenant screening reports, such as a credit and background check.
  • Speak with references and interview each applicant in person.
  • Conduct a pet interview if the rental property is pet-friendly.

9. Use a written lease agreement

A lease agreement is a legally binding contract between a landlord and a tenant and outlines the responsibilities of both parties. Generally speaking, a lease must be in writing in order to be enforceable. Some of the other benefits of a lease agreement include:

  • Detailed rental terms, such as the monthly rent, deposit amount, late fees, and move-in and move-out dates
  • Terms, rules, and conditions of occupancy to prevent misunderstandings
  • Protection of the rights of both a landlord and a tenant
  • Liability protection for a landlord
  • Procedures for notices and eviction

Good resources for obtaining a lease agreement include a local real estate attorney, a property management company, and free online templates from eForms, LawDepot, and Zillow Rental Manager.

10. Track income and expenses

Tracking income and expenses can feel like a full-time job, even with a rental home. While it’s possible to use a basic spreadsheet or general purpose software, it can make better business sense to sign up for a free account with Stessa to automate income and expense tracking.

Stessa works with an unlimited number of single-family, residential multifamily, and STRs. Financial performance can be monitored in real time via the online owner’s dashboard, monthly reports, like income and cash flow, can be generated, and the all-important paper trail needed for real estate investing is automatically created.

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(Video) How to Buy a Rental Property in 10 Steps (Anyone Can Do It!)

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FAQs

How do I pass the Rent affordability test? ›

The affordability check, included in the reference check, ensures that your income will sufficiently cover the rent payments. To pass the affordability check, your gross combined annual household income must be more than 30 times the monthly rental amount.

What do I need to do before renting my house? ›

10 point landlord checklist before renting
  1. Gas, fire, furnishing and electrical safety requirements. ...
  2. Energy Performance Certificates (EPC) ...
  3. Tenant vetting. ...
  4. Inventory and schedule of condition. ...
  5. Tenancy Agreement. ...
  6. Correct buildings and contents insurance. ...
  7. Dealing with late rent or rent arrears. ...
  8. Tenancy Deposits.

What documents are needed for a right to rent check? ›

Prove your right to rent online

You'll need your date of birth and details of one of the following: your biometric residence permit. your biometric residence card. your passport or national identity card.

What do I need to know before renting? ›

10 things you need to consider before renting a property
  • Can you afford the property? ...
  • What are the charges? ...
  • What's the condition? ...
  • Is the timing right? ...
  • Who lived here before, and why are they leaving? ...
  • How long is the tenancy agreement? ...
  • Does it have everything I need? ...
  • Can I make changes to the property?

How much income do most landlords require? ›

In general, landlords want your monthly income (or the combined monthly income of everyone living in the rental) to equal at least three times the rent. So that same $2,500 apartment would require you to earn $7,500 monthly, or $90,000 annually.

What income do you need to rent a property? ›

We suggest taking your basic annual salary and dividing it by 30. In our opinion this will indicate how much rent you can realistically afford each month e.g. £30,000 salary divided by 30, means a figure of £1,000 per month should set as your budget, when factoring in other living costs.

What gets checked when renting a house? ›

Landlords and agents usually want to check that you can pay the rent. They may ask to see: an employment contract or letter from your employer. recent payslips or bank statements.

What are 3 things you should do before renting an apartment? ›

Things to Know Before Renting
  1. Some Landlords Require Good Credit History. ...
  2. Rent Doesn't Help Your Credit Score. ...
  3. Your Rent Can Increase. ...
  4. You Can't Always Remove a Co-Signer or Joint Applicant. ...
  5. Get Renters' Insurance. ...
  6. Evaluate the Property and Neighborhood. ...
  7. Inspect the Property. ...
  8. Read Your Lease.

Do you have to view a house before renting? ›

Put simply, yes, you can rent a house without viewing it first. There are no legal restrictions about needing to view a property before signing the lease. However, that doesn't mean that viewings aren't important. There are many benefits to viewing a house before deciding whether it's the right fit for you.

How do I start the process of renting? ›

  1. Step 1 – Look for a property to rent. ...
  2. Step 2 – Conduct viewings. ...
  3. Step 3 – Decide on a letting agent. ...
  4. Step 4 – Make an offer. ...
  5. Step 5 – Tenant Referencing. ...
  6. Step 6 – Pay Tenancy Deposits. ...
  7. Step 7 – Sign the Tenancy Agreement. ...
  8. Step 8 – Documents and Inventory.
22 Jan 2022

Do you need a good credit score to rent? ›

There's no magic number you need to hit to be able to rent a property, but keeping an eye on your financial health can help make the process easier. A good credit score is an indication that you have a strong borrowing history.

How do I prepare to rent? ›

Properly Prepare Your Home
  1. Make the home livable by decluttering and removing any valuables.
  2. Put a fresh layer of paint on the walls.
  3. Check/replace heating and air conditioning filters.
  4. Clean windows.
  5. Fix anything that is broken.
  6. Check that all appliances are working.
  7. Have the carpets professionally cleaned.
28 Sept 2022

What a landlord must provide? ›

Landlord's responsibilities

A landlord is responsible for: repairs to the structure and exterior of the property, heating and hot water systems, basins, sinks, baths and other sanitaryware. the safety of gas and electrical appliances. the fire safety of furniture and furnishings provided under the tenancy.

How long is right to rent a check? ›

If a tenant has a time limited right to rent (e.g. a visa or Biometric Residency Permit with an expiry date) then the check must be done within 28 days of the tenancy start date and the visa must be valid for the proposed tenancy start date.

Do you really have to make 3 times the rent? ›

Although some apartments have a hard requirement on this rule, you don't need to make three times the rent to find an apartment for yourself. There is no hard and fast rule that states you need to make three times the rent to get an apartment. The rent rule came into existence because of the Section 8 program.

What is the 1 rent rule? ›

The 1% rule of real estate investing measures the price of the investment property against the gross income it will generate. For a potential investment to pass the 1% rule, its monthly rent must be equal to or no less than 1% of the purchase price.

What is 2.5 times the rent mean? ›

Rent To Income Ratio: Income Multiplier

The multiplier used in this calculator demonstrates that the tenant makes enough income to afford your rent. If you want a tenant to make at least 2.5 times the monthly rent, you will use the 2.5 multiplier, and so on.

How much rent income is tax free? ›

Earn less than £1,000 a year in rental income then you don't have to report it to HMRC. Earn between £1,000 and £2,500 a year in rental income then you need to contact HMRC.

Do landlords need to know your salary? ›

Typically, if you are renting a property in the UK you will be asked to provide the estate agency or landlord with proof of your income from employment such as a few months' worth of payslips or bank statements where your salary is paid.

Do landlords pay tax on rent? ›

Under which Section is Rental Income Taxed

An owner has to pay an income tax under section 24 of the Income Tax Act under the heading of 'Income from House Property'. The rental from vacant land will be taxed under the head ' Income from other sources'. Also read: Section 54 of Income Tax Act.

What credit score do landlords look for? ›

When you apply to rent an apartment, you can expect nearly all landlords to run a credit check. As a general rule, you'll want a credit score of 620 or higher to secure a rental.

Do landlords check bank statements? ›

Most landlords and referencing agencies require tenants to provide bank statements as proof of income and rent payments. Bank statements are very private. They can reveal a lot about how you live your life.

Do they do a credit check when you rent a house? ›

Credit checks

Your letting agent and some landlords will do a credit check to see if you've had problems paying bills in the past. They must get your permission first. It's less common for private landlords to do credit checks because they can make it take longer to rent out a property.

How do you rent checklist when did it start? ›

Since its introduction on 1 October 2015, there have been several changes to the 'How to Rent' booklet.

What should you not do when renting an apartment? ›

9 Mistakes to Avoid When Renting an Apartment
  1. Renting Mistake #1: Not reading the lease carefully. ...
  2. Renting Mistake #2: Passing up renter's insurance. ...
  3. Renting Mistake #3: Ignoring the neighborhood. ...
  4. Renting Mistake #4: Renting the apartment without seeing the unit.

What is the first thing to do in a new apartment? ›

17 Things to Do the First Month in Your New Place
  • Renovate. ...
  • Take pictures of your stuff. ...
  • Change the batteries in your smoke detector. ...
  • Give your lease a good read-through. ...
  • Figure out the package delivery system. ...
  • Measure your front door. ...
  • Scope out the laundry room. ...
  • Ask your neighbors for takeout recommendations.
20 Sept 2020

Can tenant refuse viewing? ›

You do not have to allow viewings if they are not mentioned in your contract. You could say that they must only take place at certain times. If you refuse viewings and your agreement says you must allow access, you might find it difficult to get a reference or have problems with getting your deposit back.

How does rent work? ›

Rent is payable in arrears, unless specified otherwise in the tenancy agreement. In practice most tenancy agreements set out that rent is to be paid in advance. Rent is payable for the same intervals as the periods of the tenancy, for example weekly or monthly for a weekly or monthly periodic tenancy respectively.

Do you pay rent when you move out? ›

Article summary. Renting a property requires you to pay one month's rent (sometimes more) up front. This deposit is returned to the tenant when they vacate the property. The landlord is required by law to invest this deposit in an interest-bearing account, with interest accrued being owed to the tenant.

How long can you rent a property for? ›

Normally the term for these tenancies will be 12 months, with the option to renew your agreement at the end of that period. Some landlords will prefer to have tenants with a longer fixed-term, so in some situations, you might also find them asking for 18 months or more in your tenancy agreement.

What is the lowest credit score to rent a house? ›

Going back to the credit score range, if your credit score is at least 670, you're at the start of the sweet spot. If it's within the fair credit score range (580-669), you may need to bring in a co-signer for your lease to reassure your landlord that you cover the rent payments.

What's the lowest credit score a landlord will accept? ›

“Each landlord is different, but most landlords and property managers look for a credit score above 600,” Fluegge says. FICO® and VantageScore® credit scores typically range from 300 to 850. An applicant with a higher credit score might be considered to have shown a pattern of managing their finances responsibly.

Which credit score matters the most when renting a house? ›

So, if your renter has a score of 670 or higher, that's a very good credit score for most rentals. Most landlords are looking for a score somewhere between 600 – 650 since renters don't have the credit history of making mortgage payments to boost their credit score.

How should a first time renter budget? ›

Knowing how to budget for an apartment is crucial for a first-time renter.
...
Getting Started With Your Budget For An Apartment
  1. Calculate your total monthly income.
  2. Calculate your total monthly expenses.
  3. Subtract your expenses from your pay and check what's left.
  4. Use a small portion of what's left for your living expenses.
17 Aug 2021

How are affordability checks calculated? ›

What is a mortgage affordability check? This is a lender's way to calculate how much they are willing to let you borrow and if they think you can keep up with payments. To work this out, they will look primarily at your annual income and outgoings to see what they think you can afford.

What is the formula for housing affordability? ›

Formula: ((PMT*12)/MEDINC)*100

Specifically, median family income estimates are based on the average of wage growth and last year's actual income growth. Housing Affordability Index(Composite)- Measures the degree to which a typical family can afford the monthly mortgage payments on a typical home.

What is the rule of thumb for rent affordability? ›

One popular rule of thumb is the 30% rule, which says to spend around 30% of your gross income on rent. So if you earn $2,800 per month before taxes, you should spend about $840 per month on rent.

How do you tackle housing affordability? ›

Here are just some.
  1. Abolish stamp duty. ...
  2. Increase housing supply. ...
  3. More public housing. ...
  4. Reduce capital gains tax. ...
  5. Cap negative gearing. ...
  6. Grants for first homebuyers. ...
  7. Access to superannuation. ...
  8. Levy foreign investment.

How much house can you afford for $2500 a month? ›

For example, if you budget for a monthly housing payment of $2,500 with two percent annually going to taxes and insurance, assuming the current 30-year mortgage rate is 4%, the math “worked backwards” reveals a maximum home purchase price of $385,000.

What's a good affordability score? ›

Well, as a rule of thumb to be accepted by almost all lenders you would need to have a DTI of 30% or less. Up to 40% and you may not be offered the highest income multipliers available. With a DTI of 50% or more, lenders consider you to be a high-risk borrower.

How do banks check your income? ›

Mortgage lenders verify employment by contacting employers directly and requesting income information and related documentation. Most lenders only require verbal confirmation, but some will seek email or fax verification. Lenders can verify self-employment income by obtaining tax return transcripts from the IRS.

How much do I need to make to afford a $300 000 house? ›

To purchase a $300K house, you may need to make between $50,000 and $74,500 a year. This is a rule of thumb, and the specific salary will vary depending on your credit score, debt-to-income ratio, the type of home loan, loan term, and mortgage rate.

What is the 20% rule for housing? ›

There are some additional rules of thumb to consider within this category. For example, personal finance experts recommend spending no more than 30 percent of total income on housing. That leaves 20 percent of your paycheck to cover the other essentials.

What is the 28 36 rule? ›

A Critical Number For Homebuyers

One way to decide how much of your income should go toward your mortgage is to use the 28/36 rule. According to this rule, your mortgage payment shouldn't be more than 28% of your monthly pre-tax income and 36% of your total debt. This is also known as the debt-to-income (DTI) ratio.

How much should you spend on rent per month? ›

Historically, experts suggest spending 30 percent of your income on rent. However, this is just an arbitrary number and may vary as per the tenants situation.

What is the 40 30 rule? ›

He explained that success in ski racing, or most sports for that matter, was only 40% physical training. The other 60% was mental. And of that, the first 30% was technical skill and experience. The second 30% was the willingness to take risks.

What are the best solutions for poor housing? ›

Here are six solutions to help improve affordable housing:
  1. Create Affordable Housing Trusts. ...
  2. Fund via Bond Elections. ...
  3. Offer Incentives, Tax Breaks. ...
  4. Relax Zoning, Developing Rules. ...
  5. Engage Big Tech (and Big Businesses). ...
  6. Revitalize Neighborhoods.
29 Mar 2019

What is considered housing stress? ›

Housing stress, when households have to pay too large a proportion of their income in housing costs (and thereby reduce spending on other essentials such as food and health), is the result when housing costs rise too far above household incomes.

How can Millennials afford a house? ›

So if you're a millennial looking to buy a house, here are five things you can do to make that dream come true.
  1. Pay Off Student Loans and Other Debt. ...
  2. Save for the Down Payment. ...
  3. Stand Out in a Competitive Market. ...
  4. Find an Affordable House in a Seller's Market. ...
  5. Gain Experience With the Buying Process.
30 Aug 2022

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