Unplanned property investment: The accidental landlord phenomenon
These days, it’s easier than ever to become an accidental landlord. This can be a good investment opportunity, but you’ll need to get up to speed quickly.
According to Zillow, the share of accidental landlords hasn’t been this high in years. Right now, 2.3% of all homes listed for rent on Zillow were previously listed for sale. With the market continuing to cool down, this trend could last a while.
Why Are There So Many Accidental Landlords?
The key reason for homeowners becoming landlords involves being unable to sell the house at the right price. There are several reasons why this may happen.
First, many homeowners bought or refinanced during the pandemic, securing sub-3% mortgage rates. Financially, this means that selling a home and buying a new one is less lucrative than keeping the home and renting it out.
Of course, there are other paths to becoming a landlord. Even if a homeowner hasn’t secured a low mortgage rate, the offers they get may be disappointing. Renting is also an option if you inherit a property you don’t want to sell.
What to Do if You Become an Accidental Landlord?
Whether you’re a landlord by choice or circumstance, it’s important to learn how to make the most of it. This four-step guide should be a good starting point.
1. Learn the Basic Landlord-Tenant Laws
Landlord-tenant laws outline your key legal rights and responsibilities. They vary from state to state, so it’s important to research regulations specific to your location. These rules impact almost every aspect of renting, including:
- Rent disputes
- Lease agreements
- Property maintenance
- Tenant screening
2. Update Your Insurance Policy
If you’re converting a residence into a rental, your homeowner’s insurance is unlikely to provide the coverage you want. Instead, you’ll want a landlord insurance policy. This will protect you against rental-specific risks, such as:
- Liability claims
- Tenant-related damage
- Non-payment and rent defaults
3. Notify Your Mortgage Provider
Another thing you’ll need to do when turning your home into a rental is to notify your mortgage provider. If you decide to rent out a property that you initially financed as your primary residence, you could violate your loan agreement.
Once you do this, you’ll likely need to adjust your mortgage terms before you can start looking for tenants. Your two key options are Consent to Let (short-term agreement) and Buy-to-Let (long-term mortgage with high interest rates).
4. Consider Rental Income Taxes
Taxes are a key part of any real estate investing plan. The IRS will want to know about any income from your rental property. This includes anything from the monthly rent to the portion of security deposits you retain for repairs.
You can also save a lot of money by deducting rental-related expenses to lower your taxable income. If you don’t have experience with filing taxes as a landlord, consider outsourcing this task to a Long Beach property management firm.
Being an Accidental Landlord Is Worth It
Have you recently become an accidental landlord? If so, the key thing to keep in mind is to treat this as a business, not a hobby. As long as you do your research and cover your legal bases, this can be a profitable venture.
Keep checking out our real estate content for more landlord financial tips!
