Many landlords get their start when they turn their former home into a rental property. For some, it is a temporary experiment with an extra source of income. For others, it becomes a lucrative career. There are as many reasons for making this decision as there are landlords.
If you are thinking of turning a Carlsbad home into a rental property, you are in good company!
- Maybe you’re struggling with the thought of selling a beloved home that has grown too small for your family.
- Perhaps you’re leaving the Carlsbad area for a while but plan to return.
Whatever your reasons, think carefully about whether the decision to turn your home into a rental property is right for you. If you’ve come this far, you probably have an underlying sense of your costs and income potential. Here are some simple steps that you may not have considered before leaping into things.
1. Decide If You Want to Be a Landlord
It might seem like a strange starting point, but your first step should be to ask yourself if you genuinely want to be a landlord. Being a landlord is hard work in the best-case scenario! You may need to spend significant portions of your spare time sorting out maintenance problems and handling difficult tenants. It can be a challenge to keep your property filled with good tenants who won’t cause you too much trouble. In a worst-case scenario, you can find yourself in civil court trying to collect on unpaid rent—or evicting a tenant that has become a nightmare.
It can be an exceptionally touchy decision to make if you have a lot of sentimental attachment to your home.
- Most tenants will not value the property as much as you do.
- It can be challenging to see the house in which you have invested a lot of money and emotional energy neglected or subjected to someone else’s taste.
- While rental income can be a good source of revenue, you can find yourself underwater unexpectedly.
2. Think About Your Mortgage
So you’ve decided that you want to be a landlord—and you’re ready to take on the challenge of turning your Carlsbad home into a rental property. The first place to start is to think about your mortgage. If you’re renting with or living with someone else, then this is less of a concern. If you intend to buy a second home to live in, then you need to see whether or not you can qualify for another mortgage. Some lenders may not consider rental income when making that determination. Don’t forget than mortgages for primary residences come with lower interest rates and down payments. If you intend to turn your Carlsbad area home into a rental property, you may need to refinance your mortgage to another type to qualify.
3. Make the Necessary Insurance and Tax Changes
Using your home as a primary residence comes with a different set of insurance requirements than using as a rental property. The specifics will likely differ depending on your insurance provider. In most cases, you’ll need to be sure that you’ve converted your coverage appropriately when you switch the use of your property. Landlord insurance can be a valuable investment! This type of insurance will cover damage to structures and outbuildings on the property and may also include legal fees, loss of rent, and storm & flood coverage in some cases.
Remember that you’ll need to handle taxes differently with a rental property as well. Count your rental income as taxable income, but remember that you can deduct several additional expenses:
- Utilities (while the property is vacant)
- HOA fees
- Landlord insurance costs
- Maintenance costs.
Remember that you can only have a homestead exemption on your primary residence. Don’t forget to handle this correctly when you make the switch. This is just a small selection of what to take into account when you're thinking of turning a Carlsbad home into a rental property.
4. Get Ready to Be a Landlord!
This category covers a lot of the things that you’ll need to address before you turn over the keys to your Carlsbad area rental property for the first time.
- Do you have a plan to market your property and screen potential tenants?
- Is your lease legally airtight?
- How do you want to handle pets?
- How are you going to handle maintenance issues and enforce rent collection?
- Will you be getting a real estate license?
Think about your available time and what your needs will be. You can "learn on the job,” but you may find your lessons to be a little more painful than they need to be. When you first start turning a Carlsbad home into a rental property, learning such concepts the hard way can also carry considerable risk.
Reduced Risk Through Carlsbad Property Management
Converting a primary residence into a rental property is a common way that people enter the real estate investment business. It can seem overwhelming at first. The good news is that you have someone in your corner! Hiring an expert Carlsbad property manager can help you get started with your new investment property the right way.
Raintree Property Management offers many services that can be a massive help to a new landlord. Marketing and tenant placement, rent collection, and maintenance and inspection services are all available. If you’re considering turning your home into a rental and don’t know where to start, reach out by phone or contact us online. We'll put our technology-driven approach to work for you!
