WHY RENT YOUR HOME?
While renting your home might not seem like a great option, it is often the smartest way to go in this economy. If you’ve moved to a new home but have not been successful at selling your old one, there may be an alternative to making a mortgage payment each month on a vacant house. Renting your home probably won’t make you rich in the short term (unless you rent it out longer term), but it may allow you to cover your mortgage payment and make some money while you wait out real estate stagnation.
Sounds like an easy solution, doesn’t it? But before you get the ball rolling on renting out your home, make sure you understand the pros and cons of being a landlord.
- Rent can cover some or all of the mortgage payments. So you don’t have to pay the entire amount each month. It’s possible to even make a profit. You may be able to continue to build equity at the expense of the renter — especially if your particular market is not affected or minimally affected by the slowdown. If your mortgage has been in existence for a number of years, more of the payment may be being applied to principal, so every payment is eating into the amount owed at a faster clip.
- Landlords enjoy tax advantages on top of typical mortgage interest and tax deductions.
- Being a landlord is like managing your own business – you’re the boss!
- Renting a property can provide an ongoing income which can be saved as a pension or for a “rainy day.”
- If your situation changes, as long as tenant lease obligations are met, you can use the property again yourself.
- Whether or not rental property is vacant, mortgages must still be paid.
- Expensive repairs and maintenance work cannot be delayed if tenants are inconvenienced.
- Tenant disputes could require legal representation and legal fees.
- It takes money to make money. As with any business, there are upfront expenses, such as renovations or repairs, and advertising. And with rental properties, there are government regulations that need to be followed – violations may result in fines.
- You have to cut emotional ties with your property. This can be difficult if you’ve lived there a long time.
For those not in the position to keep paying their mortgage or who need to sell their property, but can’t right away, the pros of renting almost always outweigh the cons. But how do you best lasso the biggest advantage of leasing – the income? How do you determine rent?
Prospective landlords should put a lot of thought about the costs involved, says Kathy Hertzog, president of LandlordAssociation.org. “We recommend that landlords budget 25 (percent) to 30 percent of the rent to put in a reserve for maintenance, repairs or just in case something big comes up.”
That leaves 70 to 75 percent of the monthly rental income to cover the mortgage, taxes, insurance and possibly utilities if you’re going to break even. But is that a price that tenants will pay?
Figuring out how much it will cost you to rent out the home is only the first step in coming up with what to charge. The best way to tackle this complicated project is to do research – on local market conditions, rents, comps and so on. If you charge more than landlords of similar properties in your neighborhood, it will be difficult for you to find tenants. Check the newspaper listings to see what similar properties are going for, suggests Hertzog. Another option is to go to the Web site Rentometer, which provides the median rent for any address in the country.
Hiring a company to help you with all the aspects of renting will eliminate most of the headaches of finding a good tenant. Leave it to the experts, and you’ll be pleasantly surprised how smooth the process can go.