Have you been thinking about renting your house? If you tried to sell your home but it did not sell or if you had to move but do not want to sell your house, does renting your property make sense? If you are faced with a circumstance where you have to move from your home, temporarily or permanently, renting your property might be a good option for you. However, before you make the decision to rent, you should know the pros and cons of renting and if you are willing to take on the burden of being a landlord.
Here are a few pros and cons to consider if you are thinking about renting out your home:
1. You can keep the property, continue building equity and sell later at hopefully at a better price.
2. Depending on the market, you may be able to charge enough rent to cover your mortgage payment.
3. You may see some tax breaks because as a rental property, the expenses offset the income.
1. You become the landlord or you can pay a property management company to fulfill that role.
2. You are financially responsible for needed maintenance and any repairs that might arise.
3. Tenants may damage your property.
4. If the rent does not cover the mortgage payment, you have to pay the difference.
5. Your homeowner’s insurance may go up because the home is no longer owner-occupied.
6. If you need to evict a tenant, you may incur legal fees to get the issue resolved.
With just these few pros and cons addressed, it leads to the many questions you should ask yourself before delving into a final decision to rent your home. How much rent can you realistically charge for your property? Check the current rents in your area for properties similar to yours and see what the going rent is. Will you be able to charge enough to cover your mortgage payment? What percentage of the rent collected can you set aside for emergency repairs or possible missed rent payments?
Renting your home is not just about collecting the rent. You need to know how you intend to collect it, what back-up plan you have if you cannot collect it, how you will portion the money to cover expenses and if you can pay any shortages. What will you do if the tenant says they cannot pay the rent this month? How will you handle the tenant who consistently pays the rent late or their rent checks frequently bounce? What due diligence will you do to screen tenants to ensure they can and will pay on time? What back-up plan is in place if something changes or something happens?
How will you prepare for the emergency repairs and regular maintenance? You probably rented before you bought your home. If the heat went out or the water heater broke, you called the landlord and the repairs were made quickly to avoid as much inconvenience on you as possible. Now, as the landlord, you are responsible for making those emergency repairs quickly. Some of the repairs can be quite costly, so you need to have reserves set aside to cover these when they happen.
Many people own pets, so deciding whether you will allow pets is a big decision. If you do not allow pets, you may limit the number of renters who would be interested in renting your home and/or you could end up unknowingly turning away a great tenant. If you do allow pets, there is the risk that the pets will cause damage to your property. There is also the decision of what pets you will allow. Both cats and dogs? Will you have a restriction on the number of pets allowed and/or a size limit? What breeds of dogs will you allow? When it comes to dogs, you should check with your insurance company. Some insurance companies have breed restrictions and will not cover liability claims when a specific breed of dog is involved.
Pride of homeownership is typically greater when you are the homeowner. Tenants do not own the property so the same level of pride does not exists. Therefore, a big concern is whether your tenant will take care of your property. Making sure you charge a sufficient security deposit can help provide some reassurance that they will keep the property in good condition, but it is not a guarantee. Even if your tenants do not cause any damage to the property, when they move out there are typically expenses involved in getting the property ready for a new tenant. These expenses can include a commercial cleaner to clean the entire house, a carpet cleaner to clean all the carpets and painters to apply a new coat of fresh paint. These routine chores will most likely need to be done each time a tenant leaves. You can do this work yourself or you can find contractors you trust to do them for you. If you are working with a property management company, they usually have contractors to do this.
Another important thing to check is whether your homeowner’s insurance will go up if you convert the property to a rental. Homeowners typically take better care of their properties than renters do, so there is a good chance your insurance will go up. Additionally, you should read your Mortgage or Deed of Trust. It is likely there is a clause that states you will not vacate or rent the property without notifying your lender. If you rent the property, your lender may require an assignment of rents. This protects them in the event you do not make your mortgage payments. The assignment of rents allows your lender to collect rents from your tenant and apply them to your mortgage.
Lastly, what will you do if you have a problem, conflict or dispute with a tenant? Do you have a reputable eviction attorney to turn to? There are state, local and federal laws regarding eviction that must be understood. Therefore, it may be best to have an experienced attorney handle these issues for you. While you will incur legal fees for their assistance, their help may keep you from having to pay fines.
As you can see, there are several things to consider if you are thinking about renting your home. In many cases, it may be the logical and most affordable solution to your individual circumstances. It is just important to make an informed decision after you have thought about the responsibility and potential consequences involved. We at Pink Realty have been involved in renting properties and property management and have first-hand experience in both the rewards and challenges of renting properties. If you are thinking about renting your home and have questions, call us. We can answer your questions and help you make the right choice for your circumstances. Call the experts. Call Pink!