The Accidental Landlord: What to Do First

What steps come before the first tenant moves in?

Seven steps come before the first tenant moves in. Do them in this order, because the first three can block the rest.

Step	What to do	Why it comes here
1	Read your mortgage occupancy clause	A breach can be a loan default
2	Switch to a landlord or dwelling policy	A homeowners policy may not pay a rental claim
3	Check local license, registration and inspection rules	Some cities fine unlicensed rentals
4	Set the rent from local comps	The rent drives every later number
5	Write tenant criteria and screen the same way for all	Fair Housing and consistency
6	Sign a written lease that follows state law	Deposits, notice and entry rules differ by state
7	Decide who manages the home	Time, distance and skill

Also start a separate bank account and a folder for receipts on day one. The IRS will want the numbers in April.

Do I need to tell my mortgage lender?

You may need to, if you are still inside the first year of the loan. Read the occupancy section of your mortgage or deed of trust.

The standard Fannie Mae and Freddie Mac uniform mortgage (Illinois Form 3014, 2021 edition) says this in section 6. The borrower must occupy the property as a principal residence within 60 days after signing. The borrower must keep living there for at least 1 year after the date of occupancy. The exceptions: the lender agrees in writing, which it may not unreasonably refuse, or circumstances beyond your control.

What this means for you:

• More than 1 year after move-in. The occupancy promise in that standard form has run its course. Other loan types can differ. Read your own documents.
• Less than 1 year after move-in. Write to your loan servicer. Explain the reason, such as a job transfer. Ask for written consent.
• FHA, VA or a bank’s own loan. The terms are not the same as the Fannie Mae and Freddie Mac form. Ask the servicer.

Fannie Mae’s Selling Guide treats an investment property as one the borrower owns but does not occupy. Lenders price investment loans differently. That is why the occupancy promise matters to them.

Watch for: a refinance. If you refinance after you move out, the new loan will be an investment loan, not a home loan.

What insurance change do I need?

You need a policy written for a rented home, often called a landlord or dwelling policy. Call your insurer before the lease starts.

The North Carolina Department of Insurance explains the forms. A dwelling fire policy is typically for someone who does not make the property a primary residence. It names three levels:

Form	Name	Covers the building for
DP-1	Basic form	Named perils, such as fire, lightning and internal explosion
DP-2	Broad form	More named perils, such as wind, hail, vandalism and freezing
DP-3	Special form	All risks except the exclusions listed in the policy

Two details from that page matter to new landlords:

• Liability. The NCDOI page says dwelling policies typically do not include liability coverage the way some homeowners forms do. Ask your agent to add it.
• Fair rental value. Some forms can pay lost rent if a covered loss makes the home unfit to live in.

Your own furniture and belongings: once you move them out, you do not need to insure them at the rental. Your tenant needs their own renters policy for their things. Many landlords require it in the lease.

Do I need a rental license or registration?

Maybe. The answer comes from your city and county, not from one national rule.

Some examples of what you may find:

• License for every rental. The City of Minneapolis says every rental property in Minneapolis must have a license.
• Registration only. Some cities ask for a contact name and address, with no inspection.
• Inspection. Some cities inspect before the first lease or on a fixed cycle.
• Nothing local. Many towns have no rental program at all.

How to check in 15 minutes:

1. Search “[your city] rental license” and “[your city] rental registration” on the city website.
2. Check the county website the same way.
3. Call the city building or housing department if the site is unclear.
4. If you have an HOA, read the rules for leasing limits and minimum lease terms.

Should I self-manage or hire a property manager?

Self-manage if you live close, have time on weekdays and can take calls at night. Hire a manager if you moved far away, if your job leaves no slack, or if you do not want to learn local landlord law.

A short test:

• Distance. Can you reach the house in under an hour for a leak?
• Time. Can you show the home, screen applicants and meet a plumber?
• Rules. Do you know your state’s deposit and notice rules?
• Temper. Can you enforce the lease with a tenant you like?

Two or more “no” answers point to a manager. A full-service manager costs a share of rent plus a leasing fee. Plug your rent into our property management fee calculator to see the yearly cost. Our property management page explains how owners compare managers.

What tax changes when your home becomes a rental?

Your former home becomes a rental on your tax return the day it is ready and available for rent. IRS Publication 527 covers the rules.

Three items to know now:

1. Expenses. Pub 527 lists mortgage interest, taxes, insurance, repairs, management fees and more as common rental expenses.
2. Depreciation basis. For a home you used before, the basis for depreciation is the lower of your adjusted basis or the fair market value on the date you change it to rental use (Pub 527).
3. Home sale exclusion. IRS Publication 523 lets you exclude up to $250,000 of gain ($500,000 for most married couples filing jointly) if you owned and lived in the home 2 of the last 5 years. Renting for a long time can end that option. Mark the date you moved out.

This is general information, not legal or tax advice. Check the current law or ask a local attorney or a tax professional.