Can I Rent Out my Home?
Updated: Nov 3, 2022
Original Authorship Date: 5/25/22
(above - my first home, purchased in 2017 with a 30-year 5% down conventional rehab loan, converted to positive cash flow rental property in 2020, refinanced to a 15-year mortgage of <3% interest in 2022 while retaining strong positive cash flow)
Today a buyer asked me about the prospect of renting out their home after purchase.
I wanted to go over the answer to that question:
1. If You Have a Mortgage
I suggest reaching out to your lender for this question if you have a mortgage on the property. According to Investopedia, "Do I Need to Check With My Lender Before Leasing Out My Home? Some financial institutions require that you live in your home for at least 12 months before you rent it out to anyone else. Others place limits on how the property can be used—they may only give you a mortgage for an owner-occupied property. Check your mortgage agreement to see if there are any restrictions or contact your lender directly if you are unsure of how to proceed." a. If you have a mortgage and plan to purchase something else: If you plan to purchase something else, according to Homeguides, "The FHA looks for 25 percent equity before it will permit you to use rental income to offset your current home's mortgage payment. Most lenders insist on cash reserves to cover a minimum of six months of payments on both properties." Your lender will also want to make sure that if you are purchasing something else your debt-to-income (DTI) ratio will still work out. Even if you are having positive cash flow when comparing your rental income vs your mortgage payments and other expenses, your mortgage still typically will negatively impact your DTI.
b. If you have a mortgage and plan to purchase something else: Even if you plan to rent elsewhere, for anyone with a mortgage looking to rent out a home, your debt to income ratio will still typically be negatively impacted by your mortgage even if you have a positive cash flow scenario where all rental expenses (i.e. mortgage, property management fees, maintenance, etc.) are less than the rental amount. All that said, your lender will be able to give you the most accurate info specific to your situation.
2. If You are in an Association
Also, if in an association (such as a homeowner association, and especially a condo association), be sure to check with your association to see if there is a "rental cap" specific to your community and if so, if there is any room within the cap for you to rent out your home. If renting out rooms or renting out your home for less than a year, be sure to check for any restrictions from your association prior to doing it.
3. Renting Out Rooms
When I purchased the above home in 2017, I was unmarried and did an experiment. Can I legally cover the mortgage of my home while living there by renting out a few rooms for a month at a time or more? The answer is yes, I could, and did for a month with a month-long rental in 1 room and a 3-month-long rental in another. Both of those tenants (each a single man) were excellent. I also found that it was very easy to become a "Superhost" on Airbnb if you knew what you are doing, undercut your competition while trying to do so, and limit stays to 1 night each when seeking to become a Superhost (whereas after you become one, it's fine to have longer minimums if desired. I was able to quickly obtain that as well. While some folks would be fine with it long-term, there's no way that my wife was going to want tenants in our home when we first got married, so all tenants were gone a month before we got married & we haven't had any rooms rented out in any home since because of my wife's desire for privacy. If looking to rent out rooms, some special rules apply. It typically won’t be very easy to completely leave your home and rent out rooms to others due to zoning laws and permits required to do that. You’ll typically need to remain in your home if you want to rent out different rooms to different people charging each separately (not to be confused with 2 separate parties under the same lease, which is much more likely possible, but where typically they find each other first, not you first, while you offer 1 lease for the whole home) When living in a home and renting out rooms, cities/counties vary substantially in how many rooms/people can be rented out. A big element to look for in the zoning code is the definition of “family” if you have a single-family home like most people (even if a single-family unit is part of a multi-family home where you are an owner of only 1 unit). Here are some of the laws/links to laws regarding some VA statewide and SE VA cities regarding renting out rooms, but be sure to check the actual laws, often hyperlinked, for the most up-to-date info.
4. Short Term Rentals
Here are my recommendations if you want to be an Airbnb landlord. As I share there, “Prior to renting out individual rooms (which generally can’t be done unless you are living there & sometimes requires business licensing and taxes like in Hampton for very short term rentals), be sure to check zoning laws, and be sure to look into laws before having locks on bedroom doors.” Also, some cities/counties charge a tax specifically to short-term rentals. If looking to do AirBNB at your home or something similar, check my website on short-term rentals here for some potential places to advertise in section 3 where I list websites where prospective tenants can find short-term housing.