Renting out your house is a legal and financial project, not just a listing. Before you show the property to anyone, you need to confirm your mortgage lets you rent, check your HOA rules, swap your homeowners policy for landlord insurance, secure any local rental permits, and bring the home up to habitability standards. Skip any of these and the cost can run far higher than a vacant month: renting too soon under an owner-occupied loan can be treated as fraud, a claim under the wrong insurance policy can be denied outright, and a missing lead-based paint disclosure on a pre-1978 home carries a federal penalty of up to $21,699 per violation.1US EPA. Amendments to the EPA Civil Penalty Policies to Account for Inflation Work through the steps below in order.
Confirm Your Mortgage and HOA Allow It
Most conventional and FHA loans are written as owner-occupied mortgages, which require you to live in the property for at least 12 months after closing before converting it to a rental. FHA loans are especially strict. Renting before that period ends can be treated as loan fraud, and your lender can demand immediate full repayment or start foreclosure.
After the initial occupancy period, most conventional loans won’t stop you from renting the home. Notify your lender about the change in occupancy anyway. Some loan agreements require it, and it protects you if the lender later audits occupancy compliance.
If your home is in a homeowners association, read the CC&Rs before you do anything else. HOAs can cap the number of rentals in the community, set minimum lease terms (often six months or a year, to block short-term rentals), or ban rentals entirely. Violating those rules can bring fines against you as the homeowner, and the HOA can seek a court order stopping you from leasing the property. Finding a rental ban after you’ve signed a lease with a tenant is expensive to unwind.
Switch to Landlord Insurance
A standard homeowners policy doesn’t cover a home occupied by tenants. Once someone else moves in and pays rent, most homeowners policies become void for claims tied to that occupancy. You need a landlord policy, sometimes called a DP-3, written for rental properties.
Landlord coverage differs from homeowners coverage in two ways that matter. It includes liability protection for injuries a tenant or their guest suffers on the property, which a homeowners policy typically won’t cover once you’re no longer living there. And it replaces “additional living expenses” (hotel costs if your home becomes uninhabitable) with “fair rental income” coverage, which reimburses lost rent when a covered event like a fire keeps the property from being occupied. Landlord policies generally run about 15% to 25% more than a homeowners policy on the same home.
For a single-family home worth several hundred thousand dollars, a personal umbrella policy stacked on top of your landlord coverage adds $1 million to $5 million of liability protection for a few hundred dollars a year. Cheap protection against a serious injury lawsuit.
Get Local Permits and Inspections
Many cities and counties require landlords to hold a rental license, a business permit, or a certificate of occupancy before tenants move in. A certificate of occupancy confirms the structure meets current building codes and is safe to live in. Rental licenses typically carry annual fees of roughly $50 to $350, depending on the jurisdiction. Operating without the required permits can result in fines, and in some areas you lose the legal ability to collect rent or enforce an eviction until you’re properly licensed.
Local health and safety codes often require a fire marshal inspection to verify that smoke detectors and carbon monoxide alarms are functional and correctly placed. Some jurisdictions require an inspection before every new tenancy, not just once. Call your city or county housing department early. Requirements vary widely, and inspection backlogs can add weeks to your timeline.
Meet Habitability Standards
Nearly every state recognizes an implied warranty of habitability. Your rental must be safe and fit to live in regardless of what the lease says, and the tenant cannot waive it. Core requirements include working plumbing and heating, a weatherproof roof and walls, safe electrical systems, adequate sanitation, and freedom from serious pest infestations.
Walk the property with those standards in mind before you list. A dripping faucet you’ve been ignoring for two years becomes a habitability issue the moment a tenant is paying rent. Broken locks, missing handrails, faulty outlets, and inadequate hot water are common violations. Fix them now. Deferred maintenance gets more expensive with a tenant living in the middle of it.
Federal law adds an extra step for homes built before 1978. You must give prospective tenants an EPA-approved lead hazard information pamphlet and a signed disclosure form before they are obligated under a lease, disclose any known lead-based paint hazards, and provide copies of any lead inspection reports you have. The requirement comes from 42 U.S.C. § 4852d and applies to every pre-1978 rental in the country.2Office of the Law Revision Counsel. 42 USC 4852d – Disclosure of Information Concerning Lead Upon Transfer of Residential Property The penalty for knowingly violating the disclosure requirement is up to $21,699 per violation under the current inflation-adjusted schedule.1US EPA. Amendments to the EPA Civil Penalty Policies to Account for Inflation
Set the Rent
Start with a market analysis of comparable rentals nearby. Look at recently leased homes with similar square footage, bedroom and bathroom counts, and general condition. Online listing platforms let you filter by zip code and property type to see what similar homes are asking now.
Adjust from that baseline based on what your property offers. Updated appliances, a fenced yard, a finished basement, or in-unit laundry can justify a premium. A home that needs cosmetic work or sits farther from schools and transit may need to come in below the neighborhood average. An overpriced rental sitting vacant for two months costs more than pricing it $50 below your ideal number.
Draft the Lease and Handle the Deposit
The lease should clearly cover the rent amount, due date, and accepted payment methods; the lease term and renewal process; the security deposit amount and conditions for deductions; who pays which utilities; pet policies; and rules about subletting, guests, and property modifications. Use a professionally drafted template from a legal document provider rather than writing one from scratch.
Security deposit rules vary by state. More than half of states cap deposits at one or two months’ rent, though several have no statutory limit. Whatever you collect, know your state’s rules on how to hold it. Some states require landlords to keep deposits in a separate escrow account and to give the tenant written notice of the account details. Return deadlines after move-out range from 10 to 60 days depending on the state, and missing that deadline can trigger penalties, sometimes double or triple the deposit amount.
For pre-1978 properties, the lease must include the lead-based paint disclosure and a signed tenant acknowledgment under federal law.2Office of the Law Revision Counsel. 42 USC 4852d – Disclosure of Information Concerning Lead Upon Transfer of Residential Property Standard lease templates don’t always include it. Confirm it’s there.
Advertise and Screen Within the Rules
The Fair Housing Act prohibits discrimination in rental housing based on race, color, religion, sex, disability, familial status, or national origin.3Office of the Law Revision Counsel. 42 USC 3604 – Discrimination in the Sale or Rental of Housing Many state and local laws add protections for characteristics like sexual orientation, gender identity, source of income, or age. These rules govern how you write your listing, how you screen applicants, and how you choose between them.
Advertising language matters more than most first-time landlords realize. “No children,” “perfect for young professionals,” or “ideal for single occupant” can violate the familial status or other provisions even without intent to discriminate. Describe the property, not your ideal tenant. “Two-bedroom home with fenced yard” is fine. “Great for a quiet couple” is not.
List on the major online platforms tenants search. Photos make a measurable difference; clear, well-lit images of every room draw significantly more inquiries than a few dark snapshots. Respond quickly. Prospective tenants who don’t hear back in a day or two move on.
Once applications come in, run a background check through a tenant screening service, which will pull credit, eviction records, and criminal history. These services need the applicant’s written consent and typically charge $30 to $80 per applicant, which you can usually pass along as an application fee.4Federal Trade Commission. Tenant Background Checks and Your Rights Verify income and rental history directly: call the employer, and contact previous landlords to ask about payment history, lease compliance, and whether they would rent to the person again. A common threshold is monthly income of at least three times the rent. Apply whatever criteria you set to every applicant identically. Approving one applicant with a 620 credit score while rejecting another with the same score invites a fair housing complaint.
If you deny an applicant based in whole or in part on information from a credit report or background check, federal law requires you to give an adverse action notice. It must include the name, address, and phone number of the screening agency, a statement that the agency didn’t make the rejection decision, and notice of the applicant’s right to dispute the report’s accuracy and obtain a free copy within 60 days.5Office of the Law Revision Counsel. 15 USC 1681m – Requirements on Users of Consumer Reports If a credit score factored into the decision, you must also disclose the score and the key factors that hurt it. This is the piece of the screening process landlords most commonly get wrong.
One boundary worth noting: if you’re open to Housing Choice Vouchers (Section 8), the property will need to pass an inspection against housing quality standards, and the local Public Housing Authority will execute a Housing Assistance Payment contract for the government’s share of the rent.6U.S. Department of Housing and Urban Development. PIH HCV Landlord Resources Some states and cities now require landlords to accept vouchers under source-of-income protection ordinances, so check your jurisdiction before you decide.
Plan for the Tax Consequences
Rental income is taxable and gets reported on Schedule E of your Form 1040. You can deduct a long list of expenses against it: mortgage interest, property taxes, insurance premiums, repairs, maintenance, advertising, management fees, legal fees, and utilities you pay on the tenant’s behalf.7Internal Revenue Service. Publication 527, Residential Rental Property
The biggest deduction most new landlords overlook is depreciation. The IRS lets you recover the cost of the building (not the land) over 27.5 years using the straight-line method. If your home is worth $300,000 and the land accounts for $75,000, that’s roughly $8,182 per year in depreciation, a paper loss that reduces your taxable rental income without any cash outlay.7Internal Revenue Service. Publication 527, Residential Rental Property You’re required to take the deduction whether you want it or not; the IRS reduces your cost basis by the allowable depreciation when you sell regardless of whether you actually claimed it.
Converting a primary residence to a rental also puts your capital gains exclusion on the clock. Under 26 U.S.C. § 121, you can exclude up to $250,000 of gain ($500,000 if married filing jointly) when you sell a home you’ve owned and used as your primary residence for at least two of the five years before the sale.8Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain from Sale of Principal Residence Wait more than three years to sell after converting to a rental and you no longer meet the two-out-of-five-year use test, so the exclusion disappears. Even within the window, gain attributable to periods of nonqualified use (the rental years) gets allocated proportionally and taxed at capital gains rates. The longer you rent, the smaller the excluded portion.
Decide Whether to Self-Manage
If handling tenant calls at midnight, coordinating repairs, and chasing late payments doesn’t appeal to you, a property management company can take over the day-to-day. Most charge 8% to 12% of monthly rent collected, plus a one-time leasing fee (often half to a full month’s rent) each time they place a new tenant. That fee is deductible on Schedule E.
A good manager handles marketing, screening, lease execution, rent collection, maintenance coordination, and, when necessary, the eviction process. You give up a slice of income in exchange for stepping out of the operational work. For landlords who live far from the property or own multiple units, the math usually works. For a single nearby rental, it depends on how much you value your time and how comfortable you are dealing with tenants directly.