7 Tips for renting out your home for passive income
A few years ago, I embarked on a quest to understand how other digital nomads came to design their location-independent lives and to learn what they had in common. I wanted to understand the universal challenges, approaches, and resources available in order to help others unlock their freedom with more support and ease.
One common thread I heard over and over was that location independence was achieved by receiving passive income from home rentals. Rental income is a great way to diversify your income stream or spend less of your savings during a sabbatical or work downturn.
When I kicked off my journey in 2013, the plan was to take a year-long sabbatical and travel around the world. A big part of what made that possible was by renting our house out for the year so that we not only had zero expenses associated with the house, but we also had a little extra money to spend on the trip. Little did we know that a year would turn into 8 and we would likely never live in that house again!
Since then, we’ve bought a house in Sayulita, Mexico which allows us to rent part of it for nightly vacation rentals while living in another part of the property. This helps pay for the investment and also gives us a little buffer if business slows.
For the sake of this post, I will focus on tips for renting your property out long-term. I’ll share more about my short-term rental learnings in a future post.
Here are 7 tips for renting your place medium- to long-term:
1. Get clear on what you want
Furnished or unfurnished? Furnished saves you storage costs but puts your things at risk of damage. Longer-term rentals tend to rent faster unfurnished.
Month to month or year to year? (We love a 2-year lease.)
Do you still want access to the house to stay there when you’re in town? This will likely mean charging much less in rent.
Will you allow pets? If so, be sure to get a pet deposit.
2. Hire a property manager if you can
You won’t want to deal with a tenant complaining of a broken freezer when you’re sipping smoothies on the beaches of Thailand. Property managers can cost 5-12% of the rent but not having to deal with a squeaky wheel tenant is priceless. They also handle paying the bills associated with the house, and often offer additional services such as finding tenants and pricing the rent at market value.
3. Make the upgrades you can to maximize rent & reduce issues
Paint is cheap and can make a huge difference in making your property more appealing to potential tenants, and so can landscaping. If you have any appliances that are on their last legs, consider getting an appliance insurance warranty policy.
4. Understand the tax implications of renting your home
In California, your capital gains tax is impacted by how many years you have been physically living in the house, so if you're not physically living there it changes things. Talk to your accountant about what it means to rent your house so you are fully aware of all tax implications.
5. Be sure to have a solid contract and security deposit
While you should always vet your tenants well, you should also be sure that you have very clear agreements in writing about what is and is not included in the rental, what your expectations are, and what would be a violation of the lease. For leases that are one year or longer, I highly recommend you require 2 months’ notice for moving out to give yourself enough time to find a new tenant.
6. Have eyes on the ground
Whether it’s a cleaning lady that you require to remain in place, a gardener, or a friend who agrees to a walkthrough every X months, try to ensure that you have someone who can give you a sense of how the house is being treated while you are away.
7. Purge as much as you can
It’s very common to end up extending your travels, so assume you’ll be gone longer than you think and get rid of as much as you can. Take it from someone who paid to store Tupperware for 7 years…use this opportunity to do some spring cleaning and downsize. Less to manage, less to store, less to sift through when you return!
Leveraging your assets to create additional revenue and reduce your costs is a fantastic strategy when designing your freedom. If you have any questions that weren’t covered here, feel free to email me at lisa@rebelxlabs.com!