Get your property rent-ready and protect yourself legally. Covers legal requirements, property preparation, tenant screening, lease agreements, insurance, and tax implications for first-time landlords in the US.
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Legal Requirements & Setup
Research landlord-tenant laws in your state and city
Laws vary dramatically by state. Some states are landlord-friendly (Texas, Florida), others heavily favor tenants (California, New York). Know the rules on security deposit limits, required disclosures, eviction procedures, and rent control before you list the property.
Check state security deposit limits and return timelines
Learn the legal eviction process in your jurisdiction
Check local rent control or rent stabilization laws
Register as a landlord with local authorities if required
Many cities require rental property registration, occupancy permits, or landlord licenses. Fees range from $25-$500/year. Operating without required permits can result in fines of $100-$1,000 per day. Check with your city clerk's office.
Decide whether to self-manage or hire a property manager
Property managers charge 8-12% of monthly rent plus one month's rent for tenant placement. Self-managing saves money but requires availability for maintenance calls, rent collection, and tenant issues. If the property is more than 30 minutes from where you live, a manager is worth the cost.
Set up a separate bank account for rental income
Keep rental income and expenses completely separate from personal finances. This simplifies tax filing, protects your personal assets, and is legally required in many states for security deposits. Open a free business checking account at your bank.
Consider forming an LLC to hold the property
An LLC separates your personal assets from liability related to the rental. If a tenant sues, they can only go after the LLC's assets, not your personal savings. Formation costs $50-$500 depending on the state. Consult a real estate attorney for your specific situation.
Property Preparation
Complete all necessary repairs before listing
Fix any plumbing leaks, running toilets, or slow drains
Repair or replace damaged flooring, walls, and trim
Service the HVAC system and replace filters
Fix all locks, windows, and doors so they operate properly
Bring the property up to code
Install smoke detectors in every bedroom and one per floor. Install carbon monoxide detectors near sleeping areas. Verify GFCI outlets in kitchens, bathrooms, and garages. Check that handrails are secure. Code violations create personal liability if a tenant is injured.
Install or test smoke detectors in every bedroom and hallway
Install carbon monoxide detectors on each floor
Verify GFCI outlets in all wet areas
Deep clean and paint in neutral colors
A clean, freshly painted unit rents faster and attracts better tenants. Use eggshell or satin finish in a neutral gray or warm white — these hide scuffs and clean up easily. Budget $1-$3 per square foot for professional cleaning and painting.
Document the property condition with photos and video
Photograph every room, appliance, fixture, and any existing wear. This is your baseline for deposit disputes at move-out. Store copies in cloud storage and keep them for the entire tenancy plus 2 years after.
Setting Rent & Finding Tenants
Set your rent price based on comparable rentals
Search for similar units within a 1-mile radius on rental listing sites. Match by bedroom count, square footage, condition, and amenities. Price 5-10% below market to attract a larger applicant pool and select the best tenant. A vacant unit losing $2,000/month in rent costs far more than a $100/month discount.
Create a compelling listing with professional photos
Take photos in natural light with all lights on and curtains open
Write a clear description: bedrooms, bathrooms, square footage, parking, laundry, pet policy
List on at least 3 rental platforms
Screen tenants thoroughly and consistently
Run the same screening on every applicant to avoid Fair Housing violations. Screen for: credit score (620+ preferred), criminal background, eviction history, income (2.5-3x rent), and employment verification. A thorough screening costs $30-$50 per applicant and prevents thousands in losses.
Run a credit check and background check
Verify employment and income (call employer, review pay stubs)
Check eviction history
Contact 2 previous landlords for references
Apply the same criteria to all applicants
Create written screening criteria before you receive applications. Apply these criteria identically to every applicant. Rejecting a tenant for reasons not in your stated criteria — or accepting one who doesn't meet them — can be construed as discrimination.
Lease & Move-In
Use a state-specific lease agreement
Generic leases miss state-specific requirements and won't hold up in court. Get a state-specific template from a real estate attorney ($200-$500) or a reputable landlord association. The upfront cost prevents thousands in legal exposure later.
Include all required state and local disclosures (lead paint, mold, bed bugs, etc.)
Specify rent amount, due date, late fees, and accepted payment methods
Define maintenance responsibilities (landlord vs. tenant)
Include pet policy, guest policy, and noise provisions
Walk through the lease with the tenant before signing
Conduct a move-in inspection with the tenant present
Walk through every room together. Note the condition of walls, floors, appliances, and fixtures on a signed condition report. Both you and the tenant keep a copy. This document determines deposit deductions at move-out — without it, you have no proof of pre-existing damage.
Collect first month's rent and security deposit before handing over keys
Insurance & Taxes
Switch from homeowner's to landlord insurance
Standard homeowner's insurance does not cover rental properties. Landlord insurance (also called dwelling fire or rental property insurance) costs 15-25% more but covers property damage, liability, and lost rental income. Your policy is void if you rent to tenants on a homeowner's policy.
Require tenants to carry renter's insurance
Renter's insurance costs tenants $15-$30/month and covers their belongings and personal liability. Without it, tenants may try to claim against your insurance for their lost property. Include the requirement in the lease and verify proof of policy at move-in.
Get an umbrella liability policy
An umbrella policy provides $1-$2 million in additional liability coverage above your landlord policy for $200-$400/year. A tenant injury lawsuit can easily exceed your base policy limits. This is cheap protection against catastrophic loss.
Set up a bookkeeping system for rental income and expenses
Track every dollar of income and expense from day one. Deductible expenses include: mortgage interest, property taxes, insurance, repairs, depreciation, travel to the property, and property management fees. Poor record-keeping means missed deductions and IRS problems.
Track all rental income received
Save receipts for all repairs, maintenance, and improvements
Consult a tax professional about Schedule E filing and depreciation
Frequently Asked Questions
How much rental income should I expect from an investment property?
A healthy rental yield is 6-10% annually of the property's purchase price, though this varies widely by market. In high-cost metro areas like San Francisco or New York, yields of 3-5% are common, while secondary cities like Indianapolis, Memphis, and Birmingham often deliver 8-12%. After deducting property management fees (8-10%), maintenance reserves (10% of rent), vacancy allowance (5-8%), and insurance, net cash flow on a typical rental property is 40-60% of gross rent collected.
Do I need an LLC to rent out my property?
An LLC is not legally required, but it creates a liability shield between the rental property and your personal assets in case of lawsuits. Forming a single-member LLC costs $50-$500 depending on the state filing fee, plus $100-$300 annually for a registered agent. Some mortgage lenders include a due-on-sale clause that triggers when you transfer the property to an LLC — consult your lender before making the transfer to avoid accidentally accelerating your loan.
What landlord insurance do I need beyond regular homeowners insurance?
Standard homeowners insurance does not cover rental activities — you need a landlord (DP-1, DP-2, or DP-3) policy that includes liability coverage for tenant injuries and loss-of-rent protection if the unit becomes uninhabitable. Landlord policies cost 15-25% more than homeowners insurance on the same property because of increased liability exposure. An umbrella policy ($200-$400/year for $1 million in coverage) adds critical protection if a tenant or visitor files a lawsuit exceeding your landlord policy limits.
How do I screen tenants legally without violating Fair Housing laws?
Apply the same screening criteria — credit score minimum, income requirement (typically 3x monthly rent), and background check — to every applicant identically. Federal Fair Housing Act prohibits discrimination based on race, color, religion, national origin, sex, disability, and familial status; many states add protections for source of income, sexual orientation, and criminal history. Use a standardized tenant screening service ($25-$50 per applicant, charged to the applicant) that returns credit, eviction, and criminal reports in a consistent format.