To rent out your house, you need to clear the move with your mortgage servicer and HOA, pull any rental permit your city requires, switch to landlord insurance, follow federal fair housing and lead-paint disclosure rules, screen applicants on written criteria, sign a lease that spells out rent and deposit terms, and report the income on Schedule E of your tax return. Most of these steps have to happen before a tenant ever sees the listing, and skipping any one of them can cost you a claim, a deposit, or the rental itself.
Clear Your Mortgage and HOA First
Most conventional and government-backed loans include an owner-occupancy clause requiring you to live in the property for at least the first 12 months after closing. Renting it out before that window ends, or afterward without telling your lender, can trigger a rate adjustment, a demand for full repayment, or an occupancy-fraud finding. Write to your mortgage servicer and ask whether a rental conversion is allowed and whether you need to refinance into an investment-property loan.
If your home sits in a homeowners association, pull the CC&Rs and read the rental sections. Associations commonly cap the share of homes that can be rented at once, set minimum lease terms of six or twelve months, prohibit rentals shorter than 30 days, and require you to submit the lease or the applicant to the board. Fines for violations land on you, not the tenant.
Permits, Inspections, and Safety Equipment
Many cities and counties require a rental permit, a business license, or both before you can legally advertise a residential property for rent. Fees usually run $50 to $300 per year and often come with a mandatory inspection. Some municipalities also limit the number of unrelated occupants in a single dwelling or require spacing between rental properties. Call your local planning or zoning office to confirm the zoning allows non-owner-occupied rental use.
A certificate of occupancy or rental suitability certificate confirms the property meets minimum habitability standards for electrical, plumbing, and structural systems. Renting without one can produce fines ranging from several hundred to several thousand dollars depending on how long the violation runs. The inspection also creates a paper record that the property was code-compliant on day one.
Install working smoke alarms and carbon monoxide detectors before anyone moves in. Codes generally require smoke alarms in every sleeping room and on every level, powered either by the home’s electrical system with battery backup or by a sealed ten-year battery.1eCFR. 24 CFR 3280.209 – Smoke Alarm Requirements Carbon monoxide alarms are typically required near sleeping areas when the home has fuel-burning appliances or an attached garage. Skipping these creates serious injury liability and can block you from collecting rent through the courts.
One boundary worth knowing: if you ever consider renting the house for stays shorter than 30 days, that triggers a separate layer of short-term rental licensing, lodging taxes, and sometimes commercial fire or accessibility requirements. Long-term tenancies do not, but a stray short booking can pull you into those rules.
Switch to Landlord Insurance
A standard homeowners policy does not cover a property rented full-time to a tenant. If you file a claim after someone else moves in, the insurer can deny it based on the change in occupancy. A landlord policy (sometimes called a dwelling-fire or rental-property policy) is built for this situation and typically adds three coverages a homeowners policy will not provide once the home is a rental:
- Liability protection for injuries a tenant or guest suffers on the property due to your negligence.
- Fair-rental-income coverage, which replaces lost rent if a covered event makes the home uninhabitable. The “additional living expense” line on a homeowners policy only pays for your own temporary housing.
- Landlord personal property coverage for items you provide for tenant use, such as appliances or furnishings.
Call your insurance company before the tenant moves in, not after. For occasional or short-term rentals, some insurers offer a landlord endorsement on your existing policy; a full-time rental almost always needs a separate landlord policy. It is also reasonable to require your tenant to carry renter’s insurance with a minimum liability limit (a $100,000 limit is a common starting point) and to name you as an interested party so you get notice if the policy lapses.
Fair Housing Rules
Federal law prohibits discrimination in renting housing based on seven protected characteristics: race, color, national origin, religion, sex, familial status, and disability.2Office of the Law Revision Counsel. 42 USC 3604 – Discrimination in the Sale or Rental of Housing and Other Prohibited Practices These protections cover advertising, showings, screening, lease terms, and your interactions with the tenant after move-in. Many states and cities add protected categories, such as source of income, sexual orientation, or immigration status.
The rules shape how you write a listing. Phrases that indicate a preference or exclusion tied to a protected class, like “no children,” “Christian household,” or “adults only,” violate the law even without discriminatory intent. Describe the property instead: bedrooms, rent, lease length, amenities.
Disability protections carry extra weight. You cannot charge pet fees or deposits for service animals or emotional support animals, and you cannot refuse a reasonable accommodation request related to a disability without engaging in an interactive process.3U.S. Department of Housing and Urban Development. Assistance Animals If your pet policy charges monthly pet rent or a non-refundable pet deposit, state in the lease that those charges do not apply to assistance animals.
Setting the Lease Terms
Before you draft the lease, settle the financial and operational details that will drive the agreement.
Rent and Utilities
Price the property against similar listings within a few miles using online rental platforms, local property managers, and recent comparable-rent data. Decide which utilities (electricity, water, gas, trash, internet) are included and which the tenant pays directly, and put that split in writing.
Security Deposit
Most states cap the deposit at one to two months’ rent for an unfurnished unit. Overcharging can expose you to penalties, including liability for double or triple the overcharge. A handful of states impose no statutory cap. Check your state’s landlord-tenant statute before you quote a number.
Lease Length and Early Termination
A 12-month lease is standard. Month-to-month and multi-year terms trade stability for flexibility. Whatever length you pick, include an early-termination clause spelling out the cost if the tenant has to leave early. A common structure lets the tenant pay a flat fee, often equal to two months’ rent, to be released. Without that clause, your remedy is generally limited to collecting rent until you find a replacement tenant, and most states require you to make reasonable efforts to re-rent rather than letting the unit sit vacant and billing the departing tenant for the whole remaining term.
Late Fees
Where states cap late fees, the limit is commonly around 5 percent of monthly rent, with some states allowing flat fees in the $50 to $100 range and roughly 30 states imposing no specific statutory limit. Even without a cap, a court can strike down a fee it finds unreasonable. Put both the grace period and the fee amount in the lease.
Pets and Maintenance
If you allow pets, write in any size or breed limits, a non-refundable pet deposit or monthly pet-rent charge, and the tenant’s responsibility for pet damage. These charges cannot apply to assistance animals. For upkeep, say whether the tenant handles lawn care, snow removal, or minor repairs below a set dollar threshold.
Required Disclosures and the Move-In Checklist
Lead-Based Paint
For any property built before 1978, federal law requires you to give prospective tenants the EPA pamphlet “Protect Your Family From Lead in Your Home” and a signed disclosure form identifying known lead hazards before the tenant is bound by the lease.4Office of the Law Revision Counsel. 42 USC 4852d – Disclosure of Information Concerning Lead Upon Transfer of Residential Property The lease itself must include a lead warning statement and the tenant’s signature confirming they received the pamphlet and the disclosure.5eCFR. 24 CFR 35.92 – Certification and Acknowledgment of Disclosure Civil penalties for skipping this step can reach $22,263 per violation under the current inflation-adjusted schedule.6Federal Register. Civil Monetary Penalty Inflation Adjustment
State-Specific Disclosures
Many states layer on additional disclosures: known mold or moisture problems, flooding history, radon test results, the building’s smoking policy, information about registered sex offenders in the area. A few states require you to test for radon and share the results. Check your state’s landlord-tenant statute or your real estate commission for a complete list; missing one can give a tenant grounds to break the lease or pursue damages.
Move-In Condition Report
A move-in and move-out condition report is your primary evidence in any security deposit dispute. Walk through room by room, noting the condition of walls, flooring, appliances, fixtures, and any existing damage. You and the tenant both sign and date it at the key exchange. Back the form with timestamped photographs or video of every room. At move-out, you will compare the property against this baseline to decide whether any deductions are justified.
Screening Applicants
Serious screening cuts the risk of missed rent, property damage, and eviction. Use a third-party screening service to pull credit reports, eviction history, and criminal background checks on every adult applicant. The reports typically run $35 to $75 per person, and you can pass that cost to the applicant as an application fee where your state allows it.
Apply identical criteria to everyone: same minimum credit score, same income-to-rent ratio, same background standards. Inconsistent screening is one of the most common ways landlords end up facing discrimination complaints. Write your criteria down before you start taking applications and keep a record of why each applicant was approved or denied.
If you deny an application based in whole or in part on information from a consumer report, federal law requires you to send the applicant an adverse action notice.7Federal Trade Commission. Using Consumer Reports: What Landlords Need to Know The notice must give the name and contact information of the reporting agency, state that the agency did not make the denial decision, and inform the applicant of the right to dispute inaccurate information and obtain a free copy of the report within 60 days.8Office of the Law Revision Counsel. 15 USC 1681m – Requirements on Users of Consumer Reports The notice is required even if the report was only a small factor.
Signing the Lease and Handing Over the Keys
You can execute the lease on paper or through a secure electronic signing platform. Digital signatures carry the same legal weight as ink signatures under federal law.9Office of the Law Revision Counsel. 15 USC 7001 – General Rule of Validity Collect the first month’s rent and the full security deposit in verified funds (a cashier’s check, money order, or confirmed electronic transfer) before you hand over the keys.
At the key exchange, give the tenant a signed copy of the lease, the completed move-in checklist, every set of keys, garage-door openers, and any access codes for gates or common areas. Legal possession transfers at that moment. From then on, you must follow your state’s notice rules before entering the property, typically 24 to 48 hours for non-emergency visits such as inspections or repairs.
Reporting Rental Income and Deductions
Every dollar of rent you collect is taxable income, reported on Schedule E of your federal tax return.10Internal Revenue Service. Topic No. 414, Rental Income and Expenses Rental properties come with substantial deductions that offset that income.
Deductible Expenses
You can deduct ordinary and necessary expenses tied to the rental, including mortgage interest, property taxes, insurance premiums, advertising, property management fees, repair and maintenance costs, legal and professional fees, and utilities you pay on the tenant’s behalf.11Internal Revenue Service. Publication 527, Residential Rental Property Watch the line between repairs and improvements: repairs are deductible in the year you pay them, while improvements must be capitalized and depreciated. Fixing a leaky faucet is a repair; replacing the plumbing system is an improvement.
Depreciation
You can depreciate the building (not the land) over 27.5 years using the straight-line method under the Modified Accelerated Cost Recovery System.11Internal Revenue Service. Publication 527, Residential Rental Property Subtract land value from your cost basis and divide by 27.5 for the annual deduction. Report depreciation on Form 4562 beginning the first year the property is placed in service as a rental.
Passive Loss Rules
Rental income is generally passive, which means losses can only offset other passive income, not wages. If you actively participate (approving tenants, setting rent, authorizing repairs), you can deduct up to $25,000 in rental losses against non-passive income.12Internal Revenue Service. Publication 925, Passive Activity and At-Risk Rules The allowance starts phasing out when modified adjusted gross income exceeds $100,000 and disappears entirely at $150,000. If you file married-filing-separately and lived with your spouse at any point during the year, the allowance is unavailable.
Security Deposits
A refundable security deposit is not income in the year you collect it because you may have to return it. It becomes taxable only when you keep part or all of it, for example to cover unpaid rent or repair damage. If the deposit is applied as the final month’s rent, treat it as advance rent and report it in the year you receive it.10Internal Revenue Service. Topic No. 414, Rental Income and Expenses
Keep lease agreements, rent records, expense receipts, repair invoices, and tenant correspondence for at least three years after you file the return for that year.13Internal Revenue Service. How Long Should I Keep Records Hold onto records tied to the property itself, especially depreciation calculations, until at least three years after you sell the property.
Handling the Security Deposit After Move-Out
Security deposit rules are among the most heavily regulated corners of landlord-tenant law, and mistakes here drive a large share of lawsuits against landlords. Many states require you to hold the deposit in a separate bank account and disclose where it sits. Roughly 14 states require you to pay interest on the deposit, with rates and triggering conditions (minimum tenancy length, minimum building size) that vary by state.
When the tenant moves out, a state-set deadline governs when you must return the deposit along with an itemized statement of deductions. Deadlines range from about 14 days in the fastest states to 45 days in the slowest. The itemized statement has to detail each deduction (what was damaged, what the repair cost) and, where required, include receipts or invoices. Missing the deadline or failing to itemize can forfeit your right to withhold anything or expose you to liability for two to three times the amount wrongly withheld.
If a Tenant Stops Paying Rent
You cannot change the locks or shut off utilities. Every state requires a formal process that starts with a written “pay or quit” notice giving the tenant a set number of days to pay or move out. Notice periods range from three days to 30, with most states falling in the three-to-five-day range. If the tenant does not pay or leave, you file an eviction lawsuit in court. Trying to remove a tenant outside that process creates liability for illegal eviction, which usually costs more than the unpaid rent.