5 Things to Know Before You Rent Out Your Home

trulia.com

If you’ve entertained thoughts about renting out your home, there may be a few questions you’ve already asked yourself, such as, “Is it worth hanging on to this property? How will I feel about strangers moving into my home? Will my tenants be responsible?”

Owning a rental property can require hard work, patience, and planning. On one hand, there’s the good to consider, like the potential to increase your income and build a steady cash flow. On the other hand, being a landlord may test your ability to deal with the unexpected, like emergency home repairs or unreliable renters.

Before you hand over the keys to your home, here’s what you can do to make the rental process go smoother.

1. Research your market. Research the market in the neighborhood of your rental home to choose a rent amount that matches the local rental rates while still helping you earn a profit. Consider the number of bedrooms, bathrooms and square footage. You might also take into consideration any new additions to the property and the age of the home. Don’t forget to factor in costs like pest control, lawn maintenance, and occasional home repairs.

2. Grace your home with curb appeal. Depending on where you live and the time of year, your home may have taken a beating from the sun, wind, rain, or snow.Without costing an arm and a leg, a power washer can work wonders on your home to give it a fresh look. Clean out the flower beds and trim shrubs and low-hanging tree branches. Giving your lawn a fresh trim, your panels a new coat of paint, or your shutters a good cleaning are all good components of curb appeal. The first impression of your home’s curb appeal can mean everything.

3. Check to see if your prospective tenant is financially responsible. A credit check can offer insights into your applicant’s payment history and gives you a good idea if they’ll likely be a good or bad credit risk. You may also want to consider hiring a reputable company that can perform a tenant screening check on your potential occupants to find out if they’ve damaged previous rental properties or have a criminal record. You can also ask for referrals of past residences since this information won’t be included in a credit report.

4. Plan for financial emergencies. Renting comes with its own set of unexpected emergencies. These emergencies can range from tenants suddenly vacating a property to calling you on a Sunday about a potential water heater replacement. These can be tough expenses to bear, and as a landlord, it will behoove you to keep aside funds for such situations.

5. Get appropriate insurance coverage. When renting your home to someone, there’s always the possibility that they, or one of their guests, might have an accident or damage your property. You could also experience a loss of rental income due to an unforeseen disaster. The proper insurance may cover these things along with legal fees if you end up taking your tenant to court.

For some, becoming a landlord is all about on-the-job training. It can be a challenge, but in the end renting out your extra space can help you reap financial benefits.


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Can Renters Claim a Home Office on Their Taxes?

trulia.com

Apartments used for business can also qualify for IRS deductions — but make sure you know the rules and exceptions.

Almost everybody knows that owning a home equals tax breaks. If you rent, however, conventional wisdom says you’re out of luck. Not true! If you use your home for business — even if it’s a rental — you may be able to claim the home office deduction on your federal income taxes. The good news is, for tax purposes, the definition of a home applies not only to properties you own but to rentals, too.

Of course, when it comes to taxes, nothing is completely simple (it’s a 4 million-word tax code, remember?). Rules and exceptions still apply. To help you sort it all out, we looked at a few of the most common questions for renters who work from home, at least part of the time.

I do most of my work from my apartment. Does that count?

To qualify for the deduction, you must use your home — no matter how it’s defined — as your principal place of business.

That doesn’t mean that you can’t have more than one place of business: it simply means that you must use your home “substantially and regularly” (that’s the IRS criterion) for business. That sounds subjective. And it is. Generally, you can satisfy the rule if you meet clients at your home office as part of your normal course of business. That’s true even if you also carry on business at another location, including a different office or your local Starbucks.

I meet that criterion!

Well, there’s another hurdle. The space you claim must be used exclusively for conducting business. That means you can’t use it for any other purpose. Parking your laptop on the kitchen table doesn’t transform the kitchen into your office; ditto if you meet clients in your living room (no matter how nice your new sofa is). The space must be clearly exclusive, but it doesn’t have to be completely separate from your other living space (you don’t, for example, have to claim an entire room as your home office — the old “locked door” rule no longer applies).

What if I’m not self-employed?

Most people assume that you have to be self-employed, but that’s not true: the deduction is also available to employees who work from home. However, in addition to the exclusivity requirement, your work space must be for the convenience of your employer and not because it’s simply easy for you. You have to pay all of your own expenses, as well: to claim the deduction, you cannot perform services in a space that you also rent to your employer.

How do I calculate the percentage of my home used for business?

It’s simple math. First, determine the square footage of your entire home. Next, measure the room or part of a room that qualifies as your business space. Divide the space used for business by the total square footage of your home. The resulting percentage is what you’ll use to prorate your expenses. Here’s a quick example: Suppose your apartment is 1,000 square feet and the space you use for business is 200 square feet. You’ll figure your deductions by prorating expenses by 20 percent, or 200/1,000.

What expenses qualify for the deduction?

To figure the home office deduction, qualifying expenses for homeowners may include mortgage interest and real estate taxes. But that doesn’t mean that renters are stuck: payments to your landlord count. Qualifying expenses for homeowners and renters also include items like home maintenance, including renter’s insurance, electricity, security systems, heating and cooling systems, and the like. It may also include Internet and a secondary phone. It’s important to note that the IRS does not allow a deduction for a primary phone in your home even if you use it only for business (the IRS considers it a personal expense nonetheless).

OK, so how do I calculate my total deduction?

Multiply the percentage of your home used for business by your total expenses. The resulting figure is your deduction. Using our earlier example, let’s assume your total expenses are $8,000. Your deduction, reportable on a Form 8829, is $1,600 (or the 20 percent you figured as your prorated value multiple).

What if I’m terrible at math?

If you’re looking for something a little easier, the IRS now offers a simplified option for calculating the home office deduction: multiply the square footage of the portion of your space used for business by the prescribed rate. The current applicable rate is $5 per square foot up to a maximum allowable square footage of 300 square feet. Again using our example, if you use 200 square feet of your home for business, your deduction is $1,000, or 200 square feet x $5/square foot. In our examples, the deduction calculated under the simplified method isn’t less than the traditional method. That’s not all that unusual, depending on the individual circumstances. Don’t let the numbers fool you, though: If record keeping isn’t your strong suit, the simplified method is likely best for you.

Nothing easy is ever free

One more word of caution: No matter which option you choose, remember that the IRS requires that you keep excellent records to substantiate your expenses!

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Can You Compromise? Tips For Couples on When to Rent vs. Buy

realtor.com

By: Angela Colley 

 

 Many people dream of homeownership. But a purchase becomes complicated when you and your partner aren’t of the same mind when it comes time to buy.

If you’re ready to buy, but your partner wants to keep renting, you’ll have to reach a compromise that’s best for both of you. To get there, make sure you consider every angle on whether to rent or buy.

Talk it out

Before you plan your future, sit down and discuss your reasons for wanting to buy a house, as well as your partner’s reasons for wanting to rent. Here are a few questions to spark the conversation:

• What are the perks of home ownership?
• What style and size of home do you want?
• Do you want to relocate or stay in the area?
• What benefits does your partner see in renting?
• What lifestyle changes may occur if you keep renting?
• Will a home purchase alter your lifestyle in a negative or positive way?

Knowing what your partner is thinking and feeling about the big decision benefits you both and can help you reach a compromise on this rent or buy dilemma.

What’s ahead?

Buying a home is a huge commitment. You may have to live in your first home for several years while you build up equity. If you buy before you’re ready and wind up needing to move, you may take a loss when you sell.

To know if you’re ready, consider what lies ahead for you and your partner in the next five to 10 years. For example, if your jobs are stable and you like your area, buying may make sense. However, if your partner may have to transfer for work in the near future, it may make more sense to remain a renter.

Future family planning will also help you decide. If you plan to have children soon, you’ll need a house with enough bedrooms to accommodate everyone. If you want to add pets to your family, you may need a home with a large backyard.

Are you ready?

Buying a house is a large financial commitment and your partner may be hesitating because of financial concerns. Knowing where you both stand financially can help you reach a compromise. Keep your finances in mind as you prepare the following information:

• Your credit histories – Order a copy of your credit reports and scores. These numbers are crucial when you apply for a mortgage.
• Your income – You’ll need stable income. If you’ve recently lost your job or your partner recently made a career switch, renting may make more sense.
• Your combined savings – To avoid private mortgage insurance, you’ll need to put at least 20 percent down on your home.
• Your budget – Homeownership comes with a host of repair and upkeep costs renters don’t typically face. To be prepared, you’ll both need a rock solid monthly budget.

To rent or buy, that is the question. But considering these tips before you decide can make a big difference in how the decision ends up.