Economic downturns and life’s unexpected twists and turns are forcing homeowners across the country to become reluctant landlords. As home prices continue to sag in some markets and a cool job market sends workers in search of employment in other areas, truing the family home into a rental may become the only option. But in making the shift from homeowner to property owner, many of these inexperienced landlords end up losing money and facing legal action because they haven’t adequately prepared for the role.

Changing Insurance

When renting out a home that once was a primary residence, an important first step is to switch from a standard homeowner’s policy to rental home insurance. This covers the property itself and provides liability protection, but it doesn’t cover possessions, furnishings and the

like. That becomes the responsibility of tenants, who can get renter’s insurance to protect any possessions they bring onto the property.

Closing Out Utility Company Accounts
Although some landlords choose to cover certain utilities, that usually happens with a multi-unit property. Before renting out a house, though, it’s important to ensure that homeowners have closed out any utility accounts held in their name. Tenants will need to start their own utility services so that the new landlord isn’t held responsible for missed bills.

Preparing to Deal With Tenants
One of the most daunting tasks facing new landlords is actually renting out the property. It may be simple to advertise the house for rent, but then come steps like screening tenants and finalizing the lease agreement. Inexperienced landlords may fail to screen tenants carefully, or leave important clauses out of the lease or rental agreement. Getting the help of a real estate professional or even a lawyer to create a good rental agreement can help forestall issues down the line.

Planning for Tax Time
A rental property owner is responsible for reporting rental income on income taxes. But that’s only the beginning; the new landlord will also be reporting a variety of deductible expenses. Although tax laws are subject to change, the long list of deductibles begins with mortgage interest and includes such expenditures as real estate taxes, costs of advertising the house for rent, travel, accounting and depreciation on the house. Repairs and renovations can also be deducted under certain circumstances. And it’s also possible to deduct expenses related to a home office.

Thinking Like a Professional
If a homeowner has made the shift to landlord, that creates a business, so it’s important to see the new income property in that light. Even if property owners choose to outsource aspects of managing the property to a management company, they’re still the ones in charge. Maintaining a home office, keeping goof records and establishing a businesslike relationship with tenants builds credibility and establishes authority.

Renting out a residence may be a response to unexpected circumstances, or the first step toward an investing career that involves multiple properties, as Jason Hartman recommends. But with careful planning, learning to think like a landlord can save headaches and open doors to building long-term wealth in uncertain times. (Top image: Flickr/jjmartin)

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