To rent out property as a first-time landlord, you need to confirm the home is legally eligible for rental use, switch to a landlord insurance policy, meet federal disclosure and fair housing requirements, screen applicants with a consistent written process, sign a lease that matches your state’s deposit and fee rules, document the move-in condition, and report the income to the IRS on Schedule E. Each step has a specific legal trigger, and skipping any of them can cost far more than the rent you collect. Work through them in order before your first tenant moves in.
Make Sure the Property Can Legally Be Rented
Local zoning ordinances control whether a property can serve as a rental or is restricted to owner-occupied housing. If the zoning doesn’t permit rentals, you’ll need a variance or a conditional use permit from the local planning board. Many municipalities also require a rental license or a Certificate of Occupancy confirming the structure meets local safety codes. Operating without the right permits can result in fines, and in some jurisdictions the city can revoke your ability to rent the property.
Safety preparation goes beyond paperwork. Every unit should have working smoke detectors and carbon monoxide alarms that meet current codes, and the electrical, plumbing, heating, and structural systems need to be in working order. Most states recognize an implied warranty of habitability, which legally obligates you to maintain heat, hot water, electricity, and structural soundness for the entire tenancy. If the property falls below livable standards, tenants in many states can withhold rent or pay for repairs themselves and deduct the cost. Habitability is the most common source of landlord-tenant disputes, so fix problems before you list.
Switch Your Insurance Before the First Tenant Moves In
A standard homeowners policy typically does not cover a property once you start renting it out. Most homeowners policies exclude damage, liability claims, and lost income tied to rental use. If a tenant or their guest is injured on the property and you’re still on a homeowners policy, your claim may be denied. Before your first tenant moves in, switch to a landlord insurance policy or add a landlord endorsement, and confirm with your insurer exactly what the new policy covers.
Landlord insurance generally handles three things a homeowners policy won’t on a rental: physical damage to the building and any landlord-owned appliances or furnishings, liability if a tenant or guest is injured due to something you failed to maintain, and lost rental income if the property becomes uninhabitable from a covered event like a fire. None of this covers the tenant’s own belongings. You can require tenants to carry renters insurance as a lease condition, and no state prohibits that requirement.
Required Disclosures for Pre-1978 Homes
If your property was built before 1978, federal law requires you to give every prospective tenant a specific lead hazard information pamphlet and a disclosure form before they sign the lease.1Office of the Law Revision Counsel. 42 USC 4852d – Disclosure of Information Concerning Lead Upon Transfer of Residential Property The disclosure must report any known lead-based paint or hazards in the unit, along with any available inspection reports. The tenant needs it as a standalone document, not buried inside the lease.
The penalties are steep. The EPA’s inflation-adjusted maximum civil penalty currently exceeds $21,000 per violation, and the agency updates this figure annually.2U.S. Environmental Protection Agency. Amendments to EPA Civil Penalty Policies to Account for Inflation Private lawsuits by tenants can include treble damages. The disclosure itself is one pamphlet and one form, so there’s no good reason to skip it.
Fair Housing Rules You Have to Follow
The Fair Housing Act prohibits discrimination in rental housing based on race, color, religion, sex, national origin, familial status, and disability.3Office of the Law Revision Counsel. 42 USC 3604 – Discrimination in Sale or Rental of Housing and Other Prohibited Practices That’s seven protected classes at the federal level. Many state and local laws add protections for categories like sexual orientation, gender identity, source of income, or marital status. The law applies to advertising, screening, lease terms, and maintenance, not just the final yes-or-no decision on an applicant.
Disability rules catch new landlords off guard. You must allow reasonable modifications to the unit at the tenant’s expense when needed for accessibility, and you must make reasonable accommodations to your rules when a tenant’s disability requires it. The most common accommodation involves assistance animals. Even if your lease bans pets, you have to allow a service animal or an emotional support animal when a person with a disability makes a valid request, and you cannot charge a pet deposit or fee for those animals.4U.S. Department of Housing and Urban Development. Assistance Animals You can ask for documentation connecting the animal to the disability if the need isn’t obvious, but you cannot ask for details about the disability itself.
Screening Applicants Without Breaking the Law
Start with a written rental application that collects employment history, income documentation, and authorization to pull a credit report. Application fees typically range from $35 to $75 depending on the cost of the background check service. Most landlords use a benchmark of monthly income at roughly three times the rent, though this isn’t codified in any federal rule. For self-employed applicants, ask for two years of tax returns (specifically the first two pages of Form 1040) and bank statements showing consistent deposits.
Apply identical criteria to every applicant. If you require a credit score of 650 for one person, you require it for everyone. Keep records of every application, every screening result, and every reason for acceptance or rejection. Documented consistency is your best defense if anyone challenges your selection process under the Fair Housing Act.
If you deny an applicant based on information from a credit report or background check, federal law requires you to send an adverse action notice.5Office of the Law Revision Counsel. 15 USC 1681m – Requirements on Users of Consumer Reports The notice must include the name, address, and phone number of the credit reporting agency you used, a statement that the agency didn’t make the decision, the credit score you relied on, and a notice that the applicant has the right to request a free copy of their report within 60 days and dispute any inaccuracies. Skipping this notice violates the Fair Credit Reporting Act. It’s the step first-time landlords forget most often.
Writing a Lease That Holds Up
A lease has two jobs: lay out the financial terms clearly, and set rules specific enough to enforce. List the full legal names of every adult who will live in the unit, the property address, the lease term, the exact rent amount, and the due date. A fixed-term lease (usually twelve months) and a month-to-month arrangement end differently, so pick the structure that matches your plans.
Late fees belong in the lease, but many states cap what you can charge. A federal survey of state laws found that among states with percentage-based caps, the limits range from 4% to 10.5% of the rent due, with 5% being the most common ceiling.6HUD User. Survey of State Laws Governing Fees Associated With Late Payment of Rent Setting your late fee above the local cap makes that clause unenforceable.
Beyond money, address utility responsibilities, yard and snow maintenance, guest policies, and subletting rules. If you allow pets, spell out any restrictions and additional deposits. State-specific lease templates are available through local real estate associations, but compare any template to your state’s current landlord-tenant statute, since templates sometimes lag behind legislative changes.
Security Deposits: Limits, Holding, and Return
Security deposits are governed almost entirely by state law. Limits typically range from one to two months’ rent, though several states impose no statutory maximum. Some states set different limits depending on whether the unit is furnished, whether the tenant is over a certain age, or how long the lease runs. Charging more than your state allows can void the deposit entirely or expose you to penalty damages.
How you hold the deposit matters as much as how much you collect. A number of states require you to keep the deposit in a separate escrow account, sometimes interest-bearing, rather than mixing it with your personal funds. You may also need to give the tenant written notice of the bank name, account number, and the applicable interest rate within a set period after collecting the deposit. Failing to follow these holding rules is one of the most common ways landlords lose deposit disputes, even when the tenant actually caused damage.
When the tenancy ends, most states give you between 14 and 60 days to return the deposit, with 30 days being the most common deadline. You’ll almost always need an itemized statement listing each deduction and each repair cost. Miss the deadline or skip the itemization, and many states will strip your right to keep any portion of the deposit. Some impose double or triple damages on top of that. Treat the return deadline as a hard due date.
Signing, Move-In Inspection, and Keys
Once you’ve selected a tenant, both parties sign the lease and you collect the first month’s rent and security deposit before handing over keys. Electronic signatures are legally valid for residential leases under federal law, so remote signing is fine. Require initial payments through a traceable method like a cashier’s check, certified funds, or an electronic transfer. Personal checks from a brand-new tenant carry obvious risk.
A move-in inspection is the single most important step for protecting your deposit claims later. Walk the property with the tenant using a written checklist. Document the condition of every room, appliance, and fixture. Note existing scratches, stains, and scuffs. Take timestamped photos or video. Both parties should sign the completed checklist. Without this baseline, proving that damage occurred during the tenancy becomes much harder.7U.S. Department of Housing and Urban Development. Move-In/Move-Out Inspection Form Do the same walkthrough when the tenant leaves.
Hand over all keys, including mailbox and common area keys, plus access codes for any electronic locks. Give the tenant written instructions for systems like HVAC, sprinklers, or alarm panels. Once the keys change hands, your obligations as a landlord kick in, including entry notice requirements. Most states require 24 to 48 hours’ written notice before entering the unit for non-emergency reasons.
Reporting Rental Income to the IRS
Rental income is taxable, and the IRS expects you to report it in the year you receive it. You’ll report rental income and expenses on Schedule E (Form 1040).8Internal Revenue Service. About Schedule E (Form 1040), Supplemental Income and Loss If you own more than three rental properties, you’ll need multiple copies of Schedule E but only fill in the totals section on one.9Internal Revenue Service. Publication 527, Residential Rental Property A few timing rules trip up new landlords: advance rent is income in the year you receive it regardless of what period it covers, and a security deposit you keep because the tenant broke the lease becomes income in the year you keep it. A deposit you plan to return is not income when received.
Deductions available to landlords are substantial and often offset much of the rental income. You can deduct repairs that maintain the property’s condition, operating expenses like property management fees, insurance premiums, and mortgage interest.10Internal Revenue Service. Topic No. 414, Rental Income and Expenses You can also depreciate the building itself (not the land) over 27.5 years under the IRS’s general depreciation system. Depreciation reduces your taxable rental income without requiring you to spend anything that year. If you place new property in service during the tax year, file Form 4562 with your return.
Starting with the 2026 tax year, you must issue a Form 1099-NEC to any contractor you pay $2,000 or more for services related to your rental, including plumbers, electricians, and property managers.11Internal Revenue Service. General Instructions for Certain Information Returns (2026) The threshold was $600 for tax years through 2025, so the jump is significant. The $2,000 figure will adjust annually for inflation beginning in 2027. Track every contractor payment from day one.
When Things Go Wrong: Evictions
Eviction is a court process. You cannot change the locks, shut off utilities, or remove a tenant’s belongings on your own, no matter how far behind they are. Self-help evictions are illegal in every state and typically expose you to significant liability.
The process starts with a written notice to the tenant. The type of notice and the required waiting period depend on the reason and your state’s law. Nonpayment of rent usually requires the shortest notice period; lease violations and no-fault terminations require longer. Only after the notice period expires without the tenant curing the problem can you file an eviction lawsuit. Court filing fees generally run from $50 to $500, and attorney fees can add $500 to several thousand dollars. If the court rules for you, a sheriff or marshal carries out the removal. You don’t. Violating your state’s notice rules means starting the process over.
Should You Hold the Property in an LLC?
Many landlords with multiple properties hold each one in a separate limited liability company. An LLC creates a legal wall between the rental and your personal assets: a judgment against the LLC generally can’t reach your personal savings, home, or other investments. For a single rental with modest risk, an umbrella insurance policy may provide enough protection at lower cost. For higher-value properties, multiple units, or short-term rentals, an LLC is usually worth the filing fees and ongoing paperwork. Talk to a real estate attorney in your state before transferring a mortgaged property into an LLC, since some lenders treat a title transfer as a triggering event under the loan’s due-on-sale clause.