When taking the next steps on buying your second House Hack or time to fully move away from a house hacking situation you might wonder what are some steps to do? Your soon to be full rental property is different than an owner-occupant property. These steps are important to not forget: You must change your insurance policy, notify your mortgage company, consider putting the property in an LLC, notify your town, and of course make it ready for the next tenant then put one in the unit.
1. Inform Your Insurance Company
In the grand scheme of things, not much will change. Be sure to let your insurance company know ahead of time to work out the new details of the policy. Since you will no longer be living in the property you will not need to have a regular home insurance policy. You will be transferring the insurance to Landlord insurance policy. Regular homeowners insurance covers personal belongings such as laptops, tv, jewelry. Additionally, the landlord items stored on the property such as snowblower, lawnmower, and other equipment will most likely be covered under the new landlord policy. However, it is important to keep in mind that if it is not a long-term rental property where the tenant will have renters insurance then it is best to keep the homeowner’s insurance. Landlord insurance can help with the premise of renting out and not the tenant’s property. As a rule of thumb insurance will go up 10%-30% when renting out the full property.
2. Inform Your Mortgage Company
Each lender will have different requirements for this and it is good to start the conversation for both your mortgage and insurance company ahead of time of the big move. Most mortgage companies will allow you to move out after 12 months. Do not be afraid to start the conversation and search on the 7th month if desiring to move out on the 12th month especially if they will be lending you again for the next property.
3. Alert the Town Your old Unit will be a rental
The town should be aware you are moving out of your primary residence. Most likely than not turning it into a full rental property and moving out will increase the taxes. Do not be surprised if the property taxes increase $500 or much more when you move out of the primary residence. This concept various significantly through town, city and state.
4. Consider Putting the property in an LLC
Now that you will be moved out and are not living on the property you won’t see it every day. As an off-site landlord, you won’t know what is going on on the property every second and exactly what the tenants will be doing there. Furthermore, you are growing your portfolio, and keeping each investment separate from the other and your personal property could be important for high-risk prevention. This essentially protects and separates each property. If doing the transfer it is important to notify all (tenants with an updated lease, mortgage, insurance, and other parties involved) about the change.
5. Make Unit Rent Ready
This is very important for the longevity of the property and should have been taking place while you were living in the property during your free time. Make sure the unit has no defects, drawers not working, safe, appealing, and modern to get filled as quickly as possible. After all, a vacancy is a landlord’s biggest expense and easiest to overcome.
6. Fill The unit With a Tenant
The best-case scenario would be to have a lease signed before you move out so there can be as little of a vacancy as possible. Most likely you will be in your new property and the realtor will be showing it or you will be showing the property to get filled.
In Conclusion
When making the initial purchase, doing your due diligence it is best to run the numbers for both live in situation on the property and having the property fully rented. To run the numbers of it being fully rented make sure when asking for insurance to get a quote for live in and landlord insurance. Also, be sure to add on $500-$1,000 for taxes too just to be on the safe side.
