Buying a house to partially rent out - what to consider?
I'm considering buying a house in the next year or so, and my plan is to rent out room(s) to help pay off my mortgage.
I have no debt and will have a 20% down payment on the house, and intend on making sure I can cover the mortgage payments on my own (at least for a few months if the house is empty of roommates). I have roommates where I live now and don't mind it, so I don't foresee that being a problem. What are some things I should make sure to consider and plan for when I do this? I want to be well-prepared when the time comes.
EDIT: I'm also in a college/university town, so finding people to rent a room shouldn't be too hard, as long as I buy near the bus routes.
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Income Taxes (if you're going to claim the rental income) and Property Taxes
Repair/Upkeep Costs
Having a STRONG lease for late payments, pets, due dates, security deposits, what the tenants and landlord is responsible for, etc.
Screening Tenants (unless you don't care about their background / if they're reliable, etc)
Setting a competitive price (room prices may vary based on room size / how many people are sharing a bathroom, etc)
It's most likely a good idea to ensure your tenants have rental insurance (in case something is damaged of their caused by you, and vice versa)
One of the most important things to consider is that you need to make a profit on your rental home. I overheard someone talking the other day about rental properties and he thought an extra 1-200/mo was a good idea, I strongly disagree. You need to be making at least 25-30% in profit (per home, not tenant)) to save for potential damage to your home. If you need to replace your roof and it costs ~,000, then it will take 50 months to pay for the replacement at 0/mo in profit. Also, take into consideration the property taxes, homeowners insurance, homeowners association fees when determining how much to charge per room. Since you included the fact that it's a college/university town, I would take that into consideration when determining your profit margin. Typically college students will cause more damage to your home, although not always the case, and that's where a screening process comes in handy.
I would honestly suggest 30-40%, so if the mortgage is ~,000/mo bringing in ~,400/mo in rent. However, your situation is different, and you may just want money to help pay your monthly mortgage, but it doesn't change the fact that if something breaks you HAVE to fix it. If it were just you living there and your stove top stopped working, you may order out, cook in the microwave, etc, until you could afford a new stove. This is almost not the case when you have tenants, you need to replace broken household items as soon as possible, and it would definitely be bad practice to ask a roommate to "wait" until you could afford a replacement.
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