Most people sell when their current homes are no longer right for them. But renting your home can actually be a more lucrative option than selling it.
There are many factors to consider when deciding whether or not to rent out your home. You must consider your financial situation and current market conditions, among other things. Here are the basics if you’re thinking of turning your home into a rental property.
Future Housing Needs
If you plan to leave the area but come back within a few years, it may save money to rent your home. If you sell and then buy another home when you return, you will have sales expenses both now and then.
However, if you need the money from your current home to fund a down payment for your next home, you’ll have little choice but to sell. But remember that selling can take time, and you may not have that money as soon as you’d like it.
One important consideration is whether or not you can rent the home for enough money to cover the monthly mortgage payment and other expenses (like maintenance and repairs, property taxes, and insurance). If you can, this is actually a great way to either save for retirement or to eventually earn extra income (once you’ve finished paying off the mortgage).
Right now, the rental market (especially for single-family homes) is booming. Investors are snatching up rental properties because they are good investments. Rent continues to rise in most major markets in the U.S. So having a rental property right now could really pay off. A licensed real estate professional can help you better understand the market in your area.
If home prices in your area are projected to rise over the next five years or so, it may be all right if your monthly rental income doesn’t cover all of the expenses of owning the home (if you plan to sell at a later date). Comparables from the last four to five years can help you detect the trend of your neighborhood’s home values. You may be able to sell the house at a profit in the future, making up for previous yearly losses. Once again, a licensed real estate professional can be a big help.
Being a Landlord
People have various tolerances to being a landlord. If you care a lot about the condition of your home, renting may not be for you. Tenants will dirty the carpet, scuff the paint, and ding the cupboards. And you’ll still be responsible for repairs.
You’ll also receive calls at inconvenient times. And tenants sometimes don’t pay their rent, so you may have to deal with both the loss of income and potential eviction.
If you don’t think you can be a landlord, you can hire a property management company. It often costs eight to ten percent of the rental payment, but a management company will save you a lot of time and inconvenience. The company will advertise, screen potential tenants, and execute the lease. They will also coordinate maintenance and repairs, and provide emergency service. Management companies can also be a huge help if you have problems with a tenant who doesn’t pay.
Photo by Mike Mozart