If you’re gearing up for deployment and considering turning your primary residence into a rental property, you’re not alone. Many service members choose to rent out their homes while deployed, creating a valuable stream of passive income and maintaining ownership for future use. However, successfully converting your home into a rental requires careful planning—from legal and tax considerations to setting up lease agreements and property management. This guide will walk you through everything you need to know to protect your investment, ensure smooth operations, and set yourself up for long-term success as a military landlord.
1. Asset Protection
- Set Up Wyoming LLC: Wyoming offers unique protections (Corporate Veil) that most states do not have.
- Foreign File LLC: For the Wyoming Corporate Veil to be functional, you must foreign file the Wyoming LLC into the state where the property is located.
- Land Trust: Placing the property directly into a land trust has multiple benefits: it prevents a Due on Sale, removes your name from title, and replaces it with an unobtrusive name (Main St Trust), assignment of lifetime beneficial interest is assigned to the Wyoming LLC and the Death Time beneficial interest would be assigned to a Revocable Living Trust.
2. Lease Agreement/ Property Management (If Applicable)
- Create a Lease: Have a solid lease agreement drafted in the name of the Wyoming LLC that outlines terms, rent payment schedule, maintenance responsibilities, and rules. If you are self-managing, rent checks will be made to the Wyoming LLC checking account.
- Consider a Property Management Company: If you don’t want to deal with the day-to-day management, hire a property management company to handle everything from screening tenants to maintenance. If you are going to have a property manager, the contract with the property management company will be in the Wyoming LLC name. The property manager will deposit the funds in the Wyoming LLC checking account.
- Remote Communication: If managing the property yourself, set up systems (email, phone number, app) for tenants to contact you, or ensure someone can help if emergencies arise.
- Security Deposit: Decide on the amount for the security deposit and include this in the lease.
3. Property Insurance
- Switch to Landlord Insurance: Contact your insurance provider to update your home insurance to a landlord policy.
- Review Coverage: Make sure your landlord insurance covers property damage, liability, and loss of rental income.
4. Utilities and Services
- Decide on Utilities: Determine if you want to include utilities (water, electricity, internet) in the rent or have tenants pay them separately.
- Set Up Utility Transfers: If you plan to keep utilities on while deployed, make arrangements for them to be transferred to the tenant.
- Hire a Service for Regular Maintenance: If needed, set up services like lawn care, trash pickup, or snow removal.
5. Tax Considerations
- Proper Tax Election: Your Wyoming LLC will have a disregarded tax status, meaning the Wyoming LLC does not file a tax return, your rental income flows to your Schedule E on your 1040 return.
- Tax Implications: Make sure to take depreciation and keep track of other deductions (repairs, property taxes, insurance, etc.).
- Property Taxes: Ensure that your property taxes are up to date unless exempt.
6. Emergency Plan and Contacts
- Emergency Contact Person: If you can’t handle issues while deployed, set up a trusted friend or family member to manage emergencies in your absence.
- Emergency Repairs: Identify reliable contractors and repairmen who can respond to emergencies when you’re not available.
- Tenant Handbook: Prepare a document for tenants with instructions for common issues (how to reset the circuit breaker, where the water shut-off is, etc.).
- Post Office: Consider forwarding mail to your new address if you’re relocating temporarily for your deployment.
7. Final Checks
- Keys and Access: Make sure you have spare keys for the property and decide how tenants will access the home.
- Property Walk-Through: Do a final walk-through of the home to ensure everything is in good condition and ready for tenants.
- Photos: Take detailed photos of the home’s condition before tenants move in (this can help avoid disputes about damages when they move out).
