It is often said that buying a home is an investment in the future. Although this can be true, it also depends on what you do with it. Buying a home and never finding a way to take advantage of equity or the property itself will simply mean that you invested in the product of the house and enjoyed its benefits. However, you are likely paying major dollars each month to pay back the home loan, cover utilities, and keep the property insured.
Taking advantage of homeownership can be done in a number of ways, one of which is renting out part of the home to short-term guests or even long-term tenants. This style of real estate investment can be very lucrative if you know what you are doing, but it is not a guaranteed path to profits. Here are some tips to help you be successful when renting out part of your home.
Designing a Great Space
The most effective way to make money from renting out part of your home is to design an appealing space. Although renting is a very popular living situation, especially for younger generations, that does not mean that people will be lining up to stay in your place. The space itself must be designed well to do so. If you plan to build a home that will include a rental space, you will need to consider the design very early as you navigate the requirements for a one-time construction loan. If you are making this decision for a home you already have, you may need to invest in serious upgrades, perhaps with a cash-out refinance. A great space should include comfortable furniture, Wi-fi, a kitchenette, a separate bathroom, a separate bedroom, and a living space.
Being in a Good Location
Location is critical for real estate rentals. If your house is out in the middle of nowhere, far from any community amenities or workplaces, then the list of potential tenants or guests will be very short. However, if you live near the business district or close to a large university, then you could be dealing with a gold mine of possible tenants. Whether you are renting part of your home out to vacationers or long-term tenants, location is going to play a major role in filling that vacancy.
Researching Local Rates
Finding tenants can be a challenge, and how you price your rental unit will be a major factor. If you hike up your rates too high, people will be unwilling to pay. If you have very low rates, then you will be missing out on potential profits. The key to choosing a competitive rate is researching similar rental properties in the local market. What is the average rate for a short or long-term rental in your town and how close is your rate to that number? Do you have more or fewer living space amenities than one of the most popular properties in the city? Researching other rentals nearby can help you set rates that will not scare away tenants while still yielding great income.
Having an Entrepreneurial Mindset
Renting out part of your home means you are running a business. Even though it is small scale, you have to approach this process as a business owner. There are certain soft skills that entrepreneurs need to be successful, such as taking initiative, negotiating, leading, and networking. All these skills will help you make connections in the local real estate market, advertise your property to potential tenants, and convince them to move in.
Knowing Your Audience
The final strategy for success as a rental property owner is understanding who your target audience is and what they want. Is your home in a beautiful location with close access to many tourist destinations? Then it makes more sense to advertise as a short-term vacation rental. Are you in a nice neighborhood that is close to many industrial or commercial zones with a big employee population? Then advertising to young professionals in these industries for long-term rentals is a better strategy. Figure out who your audience is and what their needs are so you can advertise to the right people and design a space that will appeal to them.
Manage Your Mortgage Payments With Rental Income
Even if you have just bought your house, turning part of it into a rental can be incredibly profitable. Even if you charge a low rate to your tenants, those payments will significantly reduce the burden of your mortgage for the property. For vacation rentals, you may even be able to cover the mortgage completely and keep the profits for yourself. This strategy could be an ideal scenario if you run the numbers and know how to attract tenants to the property.