 |
Succeed as a Live-In Landlord
Yes
Do you dream of a second income source that earns money while you’re at your job or pursuing your hobbies? Are you interested in the real estate rental market as an investment, but don’t know where to start?
Becoming a live-in landlord might be a good place to begin.
A live-in, or owner-occupied, landlord lives in one part of a property while renting out another part. This could be a single bedroom or a separated yet attached unit, like a walk-out basement. In order for the property to be classified as owner occupied, it must be the landlord’s (i.e. your) primary residence. This distinction is important for tax purposes and if you’re considering purchasing a home with the intent of being a live-in landlord—mortgage loans can have more competitive interest rates and lower down payments for this type of landlord.
There are several perks to becoming a live-in landlord as a way to enter the rental market:
- You can monitor tenant behavior and nip problems in the bud.
- It’s easier to collect rental payments.
- You can benefit from owner-occupied insurance policies.
- It allows you to subsidize your living costs with rental income.
- Problem tenants may avoid your listing if they know you’ll be around to keep an eye on them.
With these perks come pitfalls to avoid and rules to establish. You’ll find that success as a live-in landlord comes down to a balance of privacy, accessibility, and rule enforcement.
Understand the rules for owner-occupied landlords
Before you apply for a special mortgage or list your extra bedroom for rent, make sure you understand your state’s landlord-tenant laws and the rights and responsibilities of both parties. In some cities, renting out rooms without a permit is illegal. And some homeowners’ associations forbid renting out any portion of your house.
Create a rock-solid lease
This is the most important thing you can do for yourself: pay a lawyer versed in rental agreements to draw up a rock-solid lease for you and tenants to sign. You’ll need to include basics like the lease’s time frame, rent amount and due date, late-payment policy, and pet policy. To save yourself a headache, get specific about details like shared spaces, parking, any shared maintenance responsibilities, allowed changes to the space like painting, established quiet hours, visitor policy, and acceptable methods of communication.
Decide on communication
When you live so close to your tenant, establishing boundaries is critical for your comfort and theirs. It can become very easy for either of you to abuse the proximity and communicate requests and information at inappropriate times. Establish (ideally in the lease) how and when you’d like your tenant to approach you with non-emergency concerns. If you’re ok with casual exchanges as you see each other, make sure you email the tenant outlining what you discussed and how you agreed to resolve the matter so there is a paper trail. They’ll probably appreciate your follow-up and knowing you’re working on the issue!
Very carefully consider renting to friends or family
Many people may first consider becoming live-in landlords because a friend or family member asks if they can rent that extra bedroom or mother-in-law suite. If you don’t want this relationship to turn sour, you should treat it as you would a business landlord-tenant relationship, complete with detailed lease agreement. This will prevent either of you letting the rules slide and creating friction.
Enforcing lease rules
Address problems and concerns as soon as they occur or you become aware of them. This includes things like a leaky faucet as well as broken rules. If you let the rules slide even once, a tenant is more likely to break them again. Enforcing lease rules is part of your job.
Don’t abuse your rights as landlord
That rule-following applies to you, too! You may be tempted to break your policy about entering your tenant’s space, but don’t. It opens you up to legal complaints by your tenant.
Being a live-in landlord might be the right move for you. Just make sure you have all of these details figured out before your tenants move in!