You’ve got the house; this is how you rent it out.
Dave Meyer:
Do you want to rent out your house and start producing passive income? If you do, you can go two different paths. The first path is what most people do. They don’t want to sell their home, so they post a listing on Zillow, except the first tenant they find and forget about it until of course their property is trashed, they’ve lost money, and then they swear that they will never try real estate again. The second path, the path that I’m teaching you today is when you do it the right way, you find great tenants, you get paid rent every month like clockwork, and you control a property that can add hundreds of thousands of dollars to your net worth. And with just this one property, you can put yourself on the path to financial freedom. This is what I did 16 years ago. I had no experience, but I bought a property and needed to rent it out.
Years later, that one property allowed me to buy a second and then more and then more. And today I’m 38 and financially free. In this episode, I’m sharing the tips I really wish someone had told me when I first got started, and I’m going to walk you through the steps you need to take to rent out your house successfully so that you get wealthier instead of work.
All right, so here are the steps that you need to go through if you want to rent out your house and become a first time landlord. The first question you should ask yourself is should I actually be renting out this house in the first place? Because a lot of people assume they can rent out their home and make a lot of money. And a lot of them are right, but some are just wrong. Luckily though, you don’t have to guess. You can actually do the math and figure out if your home makes a good rental. The best way to do this is just to analyze it like it was a rental property that you were going out to buy. And this is super simple. You can run your numbers through a rental property calculator like the one that we have at BiggerPockets. You can check it out at biggerpockets.com/calculators and see if it cash flows.
See if it will perform better than other things that you can do with your money. Because let’s just imagine you’re living in a home and trying to figure out whether you want to sell it or rent it out. There’s probably a lot of money. You probably have equity trapped up in that house. And so you need to decide, am I better keeping my money in this home and renting it out? Or should I sell it and put my money in the stock market, buy some bonds, buy some crypto? Whatever it is you would do as an alternative, you do need to weigh those two things against each other. So if it won’t perform better than the alternative options, you should do those alternative options. You should sell and put your money elsewhere. But if it does perform as good or ideally better than those alternatives, then you should rent out your house.
And I’ll explain exactly how you do that in just a minute. But first I kind of just help everyone do this analysis for themselves because the trick to this analysis is not the math. You can do that with the calculator. It’ll do all of the math for you. The thing you need to focus on and get right are your comparables. You need to understand what you can actually rent your property out for because the number that you put into the calculator is super important. If you’re just guessing that you could rent your house out for 2,000 bucks a month, that’s not good enough for this analysis because you might find that you’re not cash flowing down the line if you don’t make that rent. So I want you to do something else instead. Go and find rent comps, rent comparables for your specific property. And this isn’t hard.
There are a couple of different ways that you can do it. The first is using some sort of automated system that uses an algorithm to pull your rents. We have a BiggerPockets rent estimator. There are other products out there that can do it as well. Or the other two ways I recommend you doing this is one, asking a real estate agent, make sure it’s an investor-friendly agent because they’ll understand rents more than just a run-of-the-mill real estate agent. Or ideally, ask a property manager. Call a property manager in the area, say, “I’m thinking about renting out my home. What do you think this would rent for?” Or talk to renters in your neighborhood and ask them what they are paying for rent. Getting a good estimate, an accurate understanding of what your rents might be is the most important part of this analysis because it’s going to help you decide definitively if you want to rent.
And it will also help if you decide to go out and rent knowing what you can charge. It’ll make listing easier. It will help you understand the quality that your property needs to be in to get the best rents. If you go out and look on Zillow and see that everything that’s renting for $2,000 is in nicer condition than yours, you can start to think about, do I charge less or do I bring my property up to that better condition that my competitors have? And if you do all this, you’ll learn whether or not to rent out your home, but it’ll also help you get a great tenant quickly by pricing your property accurately. The other thing you need to do and put into the calculator other than your rents are your expenses. And luckily, this should be really easy for you. It’s your house, right?
You should know what most of your expenses are. Just gather your mortgage information, your tax information, your insurance information. That might all be together in one payment. If so, even easier. If not, gather all of that information and put it into the calculator alongside a couple of other expenses you might not know off the top of your head because if this is a home you’re living in, you know all the stuff I just mentioned. But if you are a first time landlord, you’re going to need to figure out what repairs and maintenance costs, how much you need to keep and set aside for things like vacancy, what a property manager will cost if you’re going to use a property manager. And for most people, you can use rules of thumb because you’re not going to know precisely what each of these things is going to be.
I think that on an average home, if it’s in decent good shape, you should set about 10% of your rent every single month aside for repairs and maintenance. I personally like to use 8% for vacancy, but if you’re in a single family home in a good neighborhood that’s going to have high tenant demand, if you’re going to have families that want to stay a longer time, you could go down to six or maybe even 4%. If you rent to young professionals or young folks, they move more so you might have higher vacancies. So those are things that you should keep in mind, but usually between four and 8%. If you want to self-manage your property, that’s great. It will save you a lot of money, but if you’re going to hire a property manager, eight to 10% is what most of them charge. So you can just put those directly in the BiggerPockets calculator, press the button, and you will find out whether or not you should be renting out your home.
Once you see the results of the calculator and do this analysis for yourself and see all these numbers, here’s some things that you should look for to make this decision. First and foremost, I think your property should cashflow. It does not make sense in my opinion, especially if you’re a first-time landlord, to hold onto an asset that doesn’t cashflow. So I think you need at least a two or 3% cash on cash return. If it’s in a good neighborhood and you think it’s going to appreciate two, three, 4% cash on cash return, good enough. At least in my opinion, I think that is good enough. If you’re in an area that’s probably not going to appreciate, and you should be honest with yourself about this, but if it’s not going to appreciate that much, I would want you to see a cashflow number that’s going to be six, 7% cash on cash return.
So just think about that and do that analysis for yourself. The other thing to think about is whether or not holding onto this deal will get you better returns than an alternative investment. If you only have a 3% return on equity, and the BiggerPockets calculator will show you this, but if you only have a three or 4% annualized return, that’s not good enough. The stock market returns eight to 10% on average. So why would you hold onto this property, do the work of being a rental property investor if you could make more money elsewhere? Go to the stock market or sell the property and go buy a rental property that earns a better return than your home. Just because you already own this home does not mean that this is necessarily the best real estate investment for you. And so that’s what you’re trying to figure out in this analysis.
The other thing is there’s a non-math component to this because if you want to keep your property for personal reasons, that’s fine. If you’re like, “I’m moving for a job and I might move back in three years,” hold onto the property. That’s fine. That’s a totally different thing here. But if you’re looking at this from a financial perspective, you want to make sure it cashflows and you want to make sure your aggregate return when you add up the tax benefits, the cashflow, the amortization, the appreciation, when you add all of that up, it should be better than alternative investments like the stock market. Personally, I like to use a 12% return as my benchmark for that. So you want to see 12% or higher for your average annual ROI. So at this point, once you’ve done the calculator report, you should know for sure whether or not renting out your house is actually a good idea.
And if it is, I’m going to show you exactly how to do this in the right way. We’ll do that right after this quick break. Stick with us.
Welcome back to the BiggerPockets Podcast. Today in the show, we’re talking about how to rent out your house. Before the break, we talked about how to do this analysis like an investor, thinking about it in terms of math and deciding for sure whether or not it is actually a good idea for you to rent out your house. Now let’s turn to how you actually do it. If the numbers make sense and you think this can be a good investment, a good financial decision for you, let’s talk about the things you should do to make sure this goes well. Step one is fixing up your property. So you live in your home, you probably love it. Maybe you don’t care that there’s some splotches on the wall, that there’s some dirt under the baseboards, stuff like that. You live in a house for a long time, these things happen.
Tenants who have a choice of where they want to live are going to see those things. So spend a little time, spend a little money getting your property into a presentable condition to be listed. For some homes, this is as simple as a deep cleaning, which you can do yourself or you can pay someone for. Paint goes a really long way if you’re willing to do that. In some places you might want to put down some luxury vinyl plank flooring to make sure that it’s really resilient, ripping out carpet because that stuff gets really dirty when you have tenants. Those decisions are up to you, but I recommend you make those decisions based on two things. First and foremost, those comps that we talked about before. How are you going to be competitive in your market? Because yeah, you could just throw something up on Zillow or apartments.com, but tenants have choices and you should figure out how you want to position your property compared to everything else they might be seeing.
The second thing is cost efficacy. You want to make upgrades that number one will help you generate good rents. Number two will be safe quality products for your tenants and they’re going to love living in their place. And three, are durable and hopefully are going to last a long time. Now it can be tempting and easy to spend a lot of money on that. You want to do that in the most cost-effective way. But if you’re in this for the long run, if you want to rent your property out for several years, making those investments upfront really does pay off because you’re going to get higher rent, you’re probably going to have lower vacancy, and you’re going to have fewer headaches rather than one-off fixing things and improving things. If you just do it now, it can save you a lot of hassle over the next couple of years.
So that’s step number one, getting your property rent ready. Step two is actually going out and listing your property. This is marketing your place to tenants. And there’s two ways that you can do this, and this is sort of where you have to make this decision. You can either self-manage, this is sort of the DIY approach where you just go post it on Zillow, post it on apartments.com. It is super easy. I’ll tell you, it takes five to 10 minutes presuming that you have pictures. You can take pictures with your iPhone. Make them good pictures though, by the way. Take a couple of minutes to make them look nice. But if you spend 15 minutes taking pictures thoughtfully, you can definitely do this yourself. But with self-management also comes property management, right? You have to do all the coordination, the lease signing, you have to answer maintenance requests and calls.
You need to do all that stuff. Self-managing is great. I did it myself for 10 years, and it can be a great way to save money because you’re keeping eight to 10% of your income that you would normally be paying a property manager to do, but you have to do the work. Now, if you’re just managing one unit, if this is your former home and you live nearby, that amount of work is not that much. I will be honest, it will probably be a couple of hours a month at most. And for a lot of people, it is worth that time to increase their income. If you are interested in this approach, doing this DIY sort of self-management approach, check out a book we have. It’s called The Self-Managing Landlord. It will basically teach you everything you need to know. But don’t worry, people are so dramatic about how hard property management is.
It’s really not that hard. If you want to do this yourself, if you’ve got five hours a month, you absolutely can do it yourself. And it can be really helpful early in your investing career to build up some reserves, to build up some cashflow, and to learn the business. Honestly, if you want to be in real estate for the long run, doing self-management is so valuable because you learn everything about tenant management, everything about asset management and managing the repairs and maintenance on your project. And eventually, most people down the road in their investing career wind up hiring a property manager. But by self-managing first, you know what to look for in a property manager. You know who to hire, who’s going to be a great steward of your home and who might not do the best job. And so this is a great option.
The second option for going out and listing is going out and hiring that property manager right off the bat. This is also totally fine. If you are busy, if you just don’t like dealing with tenants and people, if you know nothing about property maintenance and repairs, go out and hire a property manager. It will cost you eight to 10% of your rents every single month, but you’ll regain time. And I’ve found that by hiring a property manager, it can also make your business more scalable. If you want to go out and buy more rentals, you’ll have more time to do all the other work that real estate investors need to do because the property manager, they’re going to do the comp research for you. They’re going to figure out what to charge for rent. They’re going to market it to tenants. They’re going to communicate with those tenants.
They’ll do the lease signing, they’ll handle repair and maintenance calls, they’ll do renewals, they’ll do all of it for you. So if you want to err on the side of more passive real estate, go out and hire that property manager. Now, whatever option you choose, whether it’s self-management or hiring a property manager, they’re probably going to use the same tools to market it. It’s not like property managers have some secret database of tenants that they’re going out and finding like you’re going to go and put it on apartments.com. You’re going to put it on RentReady, you’re going to put it on Zillow, Avail. These kinds of companies, they will put it across all of these websites. And when you’re doing it, spend a little time on the listing, right? Whether you’re approving something your property manager wrote or writing it yourself, be specific. Be thoughtful about the amenities and benefits of renting your property because you have competition.
Is it close to schools? Is it close to a grocery store? Is there high walkability? Is there off-street parking? Is there a really nice yard? What is it that you love about the property that you think tenants will love about the property? You can use ChatGPT if you want, but I recommend editing that and just really putting some thought and care into it. People want to rent places that feel special or unique or that they’ve found something that has all the amenities that they really, really love. So make sure you highlight what yours have. If I were a tenant, I would want to rent from a property manager who cares enough to take good photos, who cares enough to write a good description. When I see these one-line descriptions, I’m like, “This person is not going to be a good property manager. I don’t want to live in their home.” So just spend a little bit of time.
Again, 30 minutes, an hour, making sure that your listing is as good as possible. Once you’ve done that, you can move on to step three, which is evaluating and screening tenants. If you have done your listing right, you are going to get people contacting you. You’re going to schedule tours so people can come see the property in person. And then the crucial part of the process comes, which is finding the right tenant for your property. You cannot control many things about rental property investing, the economy, eviction timelines, all of that, but you can control how you screen tenants and make sure that you find tenants who are a good fit for your place. Now remember, you absolutely have to follow fair housing laws, but you can also implement some of your own requirements. For example, a lot of investors have criteria similar to this. These are a good place for you to start.
Number one, having a minimum credit score of 650. This is usually a benchmark. Some people use 625, but having some credit score in the mid 600s or above is what many investors do. The second thing is having an income-to-rent ratio of at least 30%. So most budgeting experts recommend that renters spend maximum 30-ish percent on their rent. And so you want to see if their income will cover their rent in that sort of proportion. Because if someone is saying, “I want to rent your property,” they could be great. But if they’re going to have to put 50% of their income to your rent, that’s not good for anyone. That is not good for the tenant. They’re going to be stretched on their budget. You don’t want that because that means the likelihood that they pay on time and as agreed is lower. You don’t want to put yourself or the tenant into that situation.
And so go and check their rent to income ratio. Third, you definitely want to call references. So many people skip this. Do not. Don’t just call their last landlord. We’ll tip about the industry. If you just call the last landlord and they’re a bad tenant, that landlord might tell you that they’re a great tenant because they just want them out of their property. So don’t just call their last landlord, but you should do that. Call their two landlords ago. Call three landlords ago. So make sure that part of your application process for renting out your home is that they list the names, phone numbers, and emails from their past three landlords. Call them and ask them. And then the last step is to pull any sort of report. So pull a credit score, you can pull eviction background, you can pull criminal records. Again, make sure that you are following all local laws and regulations about doing these things, but go and learn as much as you can about your prospective tenants and pick a tenant who can afford to live there, but also really wants to live there.
I find that when people are really excited about living in the property, they tend to be great tenants. They take good care of the place. They usually renew. You have lower vacancy. It really can work out. So be patient and diligent about this. There’s nothing really that hard about it. It’s just kind of doing a little bit of research and some common sense. You can absolutely do this. Once you’ve done that and pick the right tenant for you, this is when you go through the lease. I really recommend you get a professionally made lease. You could do this by going out and hiring an attorney. Or if you are a BiggerPockets Pro member, we actually have leases for all 50 states. They’re updated by attorneys every single year to make sure you’re compliant with all rules and provide maximum amount of protection for both you and your tenants.
It creates a mutually beneficial document that everyone can agree to. You can check those out at biggerpockets.com/leases. Now, once you have your lease in place, you need to do a walkthrough of that lease with the tenant. And you can do that in person. You could do it over the phone. What I usually do is send the lease to the tenant a couple days ahead of a meeting, and then I meet them in person at the property or at a coffee shop and just walk them through it. I find that sitting with someone and talking to them about the lease dispels a lot of this legalese that goes on through the lease. I think when you send someone this five-page document with a lot of big words that are super hard to understand, it’s legal mumbo jumbo. It’s hard to understand. It can often feel for a tenant like, what are they trying to hide in here?
What if I don’t fully understand it? I sit with tenants and I go through paragraph by paragraph, this is what this means, this is what this means. I send it ahead of time too. So if they want to run it through ChatGPT or talk to an attorney or talk to a friend or whatever, and they have questions, I can answer them. And I think the main thing that I always try to convey to tenants is that this document is here to protect both of us. It’s here to protect the property owner so that people pay on time that the property is taken care of. But in the leases, there are also provisions that protect the tenants and make sure that their privacy is respected, that their security deposit gets returned on time, that landlords don’t just barge into their property without announcing themselves. It is a mutually beneficial document.
And so talking through it person to person, face-to-face, I think really helps establish a good relationship between the property manager and the tenant. So if you are self-managing, I really recommend doing this in person if you can. Once you’ve done that, pretty simple, sign the lease, then keep a copy of it, make sure that both of you sign it and that both of you have copies, and then collect the security deposit. In your lease, you will say when the security deposit is due. Usually it’s on the first day of the lease, but sometimes you can do it like a week before or if it’s far out, you can ask for a deposit a couple months ahead of time. Get that deposit, but then I need you to do something here. Take that deposit and do not put it in your checking account. You need to create a separate bank account for your security deposits.
This is really important. A lot of people miss this, but that is not your money. A security deposit is not revenue. It is not income. It is actually, if you want to get into the accounting of it, it is a liability on your balance sheet. It is money you actually owe the tenant back. So you should not put this in your checking account. You are not legally allowed to, so you should do this. Go open another savings account, stick it in there, and don’t think about it until the tenant moves out and you have to figure out whether you’re going to return the full amount or not. So that is just one step that a lot of people miss that you need to do. Next, step five, another thing so many people miss here is you have to switch your insurance. Your normal homeowner insurance will cover some things, but is not sufficient.
It just is not enough for a rental property owner. You need landlord insurance because it covers things that landlords have to think about where normal homeowners don’t need to think about. So the number one thing I notice in this is loss of rent. So I’ve made this mistake. I’ve had landlord insurance that didn’t have loss of rent. They might call it business interruption insurance is another thing that it’s often called, but I want this crazy story. I had someone break into one of my homes and damage the water heater. I had to move the tenant out. I put him up in a short-term rental for, I think it was like a month. And I didn’t make the tenant pay because I couldn’t provide the service that he was paying for. He was paying to live in my unit. He wasn’t. So I had to come out of pocket for that.
And I didn’t get my rent that month. And so that was sort of a double hit. If you get business interruption or a rent insurance, the insurance company, when something like that happens, actually pays you your rent so it can help make you whole. So I really recommend you go out and get a good quality insurance. It’s honestly not that much more expensive than normal homeowner’s insurance. It might be a couple hundred bucks a year, but in my experience, man, it is well worth it. If you want a recommendation for a good insurance company, I use steadily. And if you’re a BiggerPockets Pro member, you can actually get increased insurance coverage and 5% off your premiums just by being a BiggerPockets Pro member. So if you’re a Pro member, go check that out. Or if you need landlord insurance, maybe go check out Pro and see if the package of perks, which are many, are worth it for you.
All right, so those are all the things you need to do before the tenant actually moves in, before you collect that first rent check. But there’s still stuff you need to do once the tenant is in the property. We’ll cover that right after this break.
Welcome back to the BiggerPockets Podcast. I’m Dave Meyer talking to you about how to rent out your home the right way. So far in the show, we’ve talked about whether or not you should rent out your home. And if you do decide to do it, what you need to do prior to a tenant moving in. These are things like creating your listing, screening your tenants, getting your lease written, and getting the right insurance for your property. Now comes the fun part, right? Now the tenant is moving in, you’re going to start collecting those rent checks, but you got to figure out how you’re going to do that. That is step six here. Figure out what system you want to put in place to collect your rents. I laugh at myself all the time thinking about how I collected rent when I first started being a landlord.
I had people mail checks. This was 16 years ago. All right? So it’s not like we had all these systems, but there were so many better systems. And sometimes I would literally lose the rent checks and I would have to ask my tenants to write them again. It’s so embarrassing. It was totally my fault. So figure out a system better than that. And there are many of them, right? There are digital management platforms like RentReady or TurboTenant or Avail. This is much more convenient for the tenants too. It allows them to pay digitally. Tenants don’t have to pay for these things, and you just get all of your income coming in. You also get a lot prepared for taxes and for accounting all at once. It just makes the system so much easier. You’re watching a YouTube video. I can’t imagine this is hard for you to conceive of, but using a digital system is better than analog.
So go check out a couple of these management softwares. We have some on ProPerks. You can go in BiggerPockets and read reviews and see which one is right for you. Most of them are good. A lot of them can meet your needs, but they have individual differences. So go check them out and figure out which one is right for you. If you are using a property manager, I should mention, they will have their own digital system. So the way it usually works is you’re not going to collect rent directly. They’re going to play the property management company and then the property management company is going to give you distributions monthly. So I have some out-of-state rentals where I have a property manager and the way it works is that every month they collect the rent for me through their system. I honestly don’t even know what it is.
They use some digital system, but it works. Then they take out one, their fee, and they also take out any repairs that came up that month, and then they give me the difference. They send me an ACH, they just deposit it directly in my bank account at the end of the month. But either way, it’s all automated. That’s really what you want for your rent collection system. Hopefully this shouldn’t be hard. This should take, again, 15, 30 minutes to set up. It’s really not that hard. And then you move on to the long game. This is where you manage your property and make sure that you’re taking care and optimizing your financial performance. Because now that you’ve got a tenant in place, you need to do the work. They are paying you for a service. You need to provide that service. You need to keep up with proactive maintenance, make sure things aren’t falling apart.
I find that one of the best ways to keep tenants is to show that you care about the property. You should care about your property and you should be going over there, looking at the outside, making sure that things are looking good. If something’s on the verge of breaking, fix it before it breaks. These things go a long way. If a toilet breaks and someone’s without a toilet for a day, that’s super inconvenient. But if you replace it proactively, they will be like, “Wow, I I love living in this place because they take care of problems before they even come to fruition. So try to be proactive about maintenance. Even when you do that, it is absolutely inevitable that you are going to have problems come up. Reply to them quickly. That is the number one thing you can do. Sometimes, unfortunately, you can’t fix the problem overnight.
I have unfortunately had problems where heat goes out and I can’t get a tech there for three days. So number one, be communicative. Be understanding. Don’t get defensive. Say, “I know this sucks. I’m sorry.” That’s true, right? You don’t want your tenant to not have heat, but sometimes things break. What do you do? Ask them what they need. Do they need space heaters? Go to Home Depot, buy a couple space heaters, go bring them over. Show that you care. Show that you really want them to have a good experience in your property. It will mean a lot to them and it will help you in the long run. I know buying three space heaters is going to cost you a couple hundred bucks, but I bet you, you have a much higher chance of keeping that tenant at the end of their lease if they saw that you were willing to do what it takes to make their experience as good as possible.
Now, one thing you can do and really should do from the start to minimize these interruptions is to build up your vendor list. This honestly, it took me years and it’s a constant battle. It’s something you always have to be doing, but you should know before something goes wrong who the good HVAC people are, who the good plumbing people are, who the good contractors are, who the good handymen are. You want to be able to call these people right away because honestly, speaking from experience, it is a bad feeling when something goes wrong, when there’s a leak, when the heat goes out, like I was explaining before, and you’re just calling around to a million different people and you don’t know who will actually show up. And the best way to do this in my experience is ask for referrals. Ask for referrals from other investors, other homeowners.
It doesn’t need to be from investors, but investors usually know cost-effective people. You don’t want to buy the cheapest person. I promise you this. It is such a big mistake people make is to go with the cheapest contractor. You also probably don’t want to go with the most expensive one. You want to search for value. Who is going to answer the phone? Be communicative. Show up on time and charge a fair and reasonable price. You need those people in your business. And again, I think the most important ones are HVACs, plumbers, electricians, and a handyman. If you can get those people, have a good reference, put them in your phone, who to call if something comes up, that’s going to make your life so much easier as a landlord because people, I think, dramatize the difficulty of being a rental property investor because like, oh, there’s a toilet breaks.
Oh, you don’t want to deal with that? No, I’m not going to go change the toilet myself. I’m going to pick up the phone. I’m going to call a plumber that I trust and say, Hey, I need a new toilet. And they’re going to go take care of it. I’m going to pay for it and everyone’s fine. It’s not that hard if you know who to call. So just spend a little time asking around and build up that list of people. And ideally, think about getting a primary and a backup because some people are on vacation. Some people are super busy that day or that week. So have two HVAC people, two plumbers that you can call in a time of need. And that’s really it. That is what you need to do to manage a rental property effectively. But there’s one more thing I do want to mention here, which is taxes.
Because if you’re going to go through the effort in doing this, the passive income is great, but there are a lot of tax advantages to renting out your home that you do not want to miss out on. A lot of newer investors don’t take full advantage of the tax code and the advantages that are written into it for people who hold onto real estate and rent it out. So this is not tax advice, but you should talk to a CPA about the following things. Number one, writing off your interest on your mortgage, right? This is what you can do with your primary. You could do it with rental properties as well. Depreciate the property. This will allow you to not pay much or any tax on the rental income that you generate each and every year. This is amazing. You do have to pay depreciation recapture when you go and sell the property, but most tax advisors recommend you do this and it could be really great for generating more cashflow.
Third, make sure you’re writing off expenses, right? Create an LLC. I’m a fan of creating an LLC. I know there’s a huge debate about this. I like creating LLCs. Every property I buy is in an LLC, and I don’t think it is worth the risk for like 400 bucks or whatever it costs to create an LLC. If you’re going to invest in this giant asset, protect it. Protect your financial life by putting it in an LLC. The other thing is if you open an LLC, you can open a business banking account and you can write off your expenses easily. So driving back and forth to Home Depot. If you need to go buy a tool to make a repair yourself, these are write-offs that you can charge against your business that will save you money as well. Also, if you have to do any big capital expenditures like replacing a roof, you could depreciate that as well, and that will lower your overall tax liability.
So I guess that’s a bonus step is go talk to your CPA. If you’re going to go rent this out, go talk to a CPA about what tax moves you should be making to ensure that you’re optimizing your performance. So that’s it. That’s how you rent out your home the right way. First thing to do, make sure that your renting out your home is actually a good investment. Go do the analysis. It shouldn’t take you that long, but figure out if this actually makes sense and it’s worth your time and effort. I think for a lot of people, especially people who have really low locked in mortgage rates over the last couple years, it is worth it. And if it is worth it to you, make sure you follow the steps that we’ve outlined in this episode so that you do it the right way.
You protect yourself, you maximize your opportunity to make money, and you provide a high quality place for your tenants to live. If you do all that, renting out your home can be a phenomenal investment that can really genuinely be a launchpad to your financial freedom. That’s our episode for today. Remember, if you are interested in doing this, our pro memberships, specifically our pro perks, have tons of benefits that you can take advantage of. Discounts on insurance, discounts on mortgages, discounts on property management software. So if you’re going to go out and do this, check out BiggerPockets Pro. It is designed for people who are managing their own rentals and can give you a huge leg up and help ensure that you’re successful when you go out and rent your home. Thank you all so much for watching this episode of the BiggerPockets Podcast. I’m Dave Meyer.
I’ll see you next time.
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