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Should I consider renting out my house until the market improves?

By
Real Estate Broker/Owner with Leslie Prest, Prest Realty, Sales and Rentals in Payson, AZ

This is my update to this article I posted originally about a year and a half ago. The sales market has not improved, in Payson.

In today's real estate market many Owners are finding that they either can't sell, or might have to sell at a very deep discount to find a buyer. Many are, therefore, turning to renting as a possible alternative to a bargain basement sale. (I'm talking here about non-occupied properties. We have many in our area- either they are 2nd homes, investment property that isn't selling, or the Owners have HAD to move for some reason).
These are some of the issues we raise with Owners who come to discuss it with us:

-Can I AFFORD to rent my house for enough time for the market to recover?
    -At least in our area (Payson, AZ) we don't see the market turning around for some time
    -Possible rent may OR MAY NOT be enough to cover your mortgage payment- rents are coming down somewhat, and there is more competition than ever, especially higher end
    -a reputable Property Management company is not going to give any refundable security deposit 
from the Tenant to you, so don't count on that money. It will probably go into the company's trust 
account until the Tenant moves out.
    -Do your homework and find out how long it takes comparable properties to rent, and for how much $.
    -Can you make the payment if the house doesn't rent for a few months, or if the Tenant leaves and  the property takes awhile to re-rent? This is a BIGGIE. You just can't count on the property renting immediately.
    -Can you make any necessary repairs to make the place safe for renters?
    -Can you do any fix-ups needed to make it "rentable"?
    -Can you do necessary maintenance while the property is rented? What if the water heater goes out? The furnace or AC? What if there is a plumbing or roof leak? Can you repair/replace necessary items? Cosmetic items don't have to be done, but a Landlord must provide the basics.
 
-How "rentable" is my house?
    -How much competition is there in your area for quailified Tenants? (Believe me, NO Tenant at all is much better than the unqualified kind)
    -How easy it it to rent properties in my neighborhood? Ask a good Property Manager. (In Payson, that means us).
    -Is the rent amount I want/need reasonable? Again- ask a professional.
    -Am I willing to allow pets? (people LOVE their pets, no pets makes a place less rentable)
    -If you want to leave your house on the sales market Tenants will NOT want to rent it. You
will probably have to give them lower rent or other concessions to get it rented. And the Tenant 
CAN and may "blow the sale" with any prospective Buyer. Better to take it OFF the sales market.
   
-How ready am I to give my house up to Tenants?

    -How emotionally attached are you? I guarantee you will have at least normal wear and tear.
    -That "accent" wall you love may make the house harder to rent. We don't want you to leave your treasured drapes (OR the furniture you just don't want anymore)
    -Are you willing to allow children? Fair Housing violations are VERY expensive.
    -Once the property is leased you CANNOT come on the property except with proper notice.
    -You MUST comply with any and all national, state, and local laws regarding rentals.
  
This is not intended to be a comprehensive list of things to consider. It is intended to get you thinking. A good (read "experienced") Property Management Company can give you information particular to your area. If you decide to rent out your house we STRONGLY recommend letting a professional handle it. Mistakes (letting in a Tenant who can't pay, tears up the house, makes a meth lab, fills it with illegals, etc.) can be very expensive.
Renting CAN be a viable option- don't let this scare you off. Just be aware of the possibilities and
TALK TO A PROFESSIONAL!

In the Payson, AZ area, call Prest Realty. We are the rental experts for Payson. Visit our web site for more information.

AR people- what would you add?

Posted by

Leslie Prest, Prest Realty                                      Find us with Payson info on Facebook and Twitter
Sales and Rentals in Payson, Arizona                                                                and Google+
We've been in Payson for 20 years, and         
love tell people why Payson is great!
http://www.PrestRealty.com
Leslie@PrestRealty.com

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Comments (8)

Steve Andrascik
Lake Mead Area Realty - Boulder City, NV

Thanks Les and Leslie. Great advice. I am a property manager in Neveda doing business in Las Vegas, Henderson and Boulder City.

Renting is becoming more of an option to homeowners who are upside down and are not able to modify their loan.

Steve Andrascik, Lake Mead Area Realty

702-523-7258

steve@HendersonHomeSearch.com

Oct 16, 2009 07:37 AM
Wallace S. Gibson, CPM
Gibson Management Group, Ltd. - Charlottesville, VA
LandlordWhisperer

*REAL ESTATE ** Rent Now ** Sell Later *

Local housing market stalled? Consider becoming a temporary landlord.

*from Kiplinger's Personal Finance magazine

The slump in home prices coupled with the plethora of For Sale signs add up to a double whammy for anyone who has to sell a home and move. Richard Rogers, an executive with Travelers Insurance, put his home in Overland Park, Kan., in suburban Kansas City, on the market last summer, when he was transferred to Hartford, Conn. The timing could not have been worse: Home sales were ebbing fast, and his $225,000, four-bedroom, two-and-a-half-bath house sat for two months with no bites.

That's when Rogers asked Home Rental Services, a local property-management company, to help him rent the house. Within a few days, the firm had found a doctor who was moving to the city with his family. He signed a two-year lease, with the first year's rent set at $1,700 per month. Rogers is nearly breaking even on his expenses, including his mortgage payment and the commission the management company charges (10% of the rent). When the lease expires, he will try to sell again.

Does it make sense?

Renting your home until the market turns around can be a good financial move, if you don't need the equity right away to buy another home. One option for cash-challenged buyers who keep the old house as a rental is to get a no- or low-down-payment mortgage. To help you qualify for a new loan, lenders usually count 75% of the rent payments as long as you have a one-year lease.

But before you decide to become a temporary landlord, crunch the numbers to see if the rent will cover your mortgage and other expenses. How much rent should you expect? For a quick read on the local rental market, check the property management co's listings on your local www.craigslist.org

Major expenses include the cost of a property-management company, unexpected repair bills and insurance.

Before tenants move in, you'll need to buy fire insurance that covers the structure and contents of the rental property. You won't need more liability coverage, but you'll need to extend your current homeowners liability insurance to cover two properties, which may cost as little as $15. If you're going to be a renter yourself before buying your next home, you can buy a renters policy that will cover liability on both places.

On the plus side, you'll be entitled to tax breaks, including depreciation (you can write off a portion of your home's cost basis, or the price you paid, each year over 27 and a half years), plus deductions for maintenance and repairs (see IRS Publication 527, Residential Rental Property). And it's important to time the rental to preserve your exclusion from capital-gains tax on any appreciation in the home at the time you sell. If you lived in the home for two years out of the previous five, you can exclude $250,000 of profit if you file a single return and $500,000 if you file jointly.

The monthly rent check probably won't cover your expenses if you bought in a hot market with a minimal down payment during the recent run-up in prices, says Ron Thompson, of Windermere Property Management NW, in Seattle. If the numbers don't add up, you'll have to decide whether to take the hit a little each month or all at once by accepting a reduced price for your home. Increasing your Withholding Allowance on your W-4 may be an option so that you have monies monthly to cover a small negative cash flow.

Pay a pro?

Unless you want to become a landlord, you should hire a professional property manager. For a fee of 6% to 8% of the rent. A property manager will find and screen tenants, negotiate the lease, collect the security deposit, take the tenant's 2 a.m. distress calls and ensure that you adhere to a raft of landlord-tenant laws.

This is a direct-mail brochure I mail out to target properties for sale in our area...I've used it for 2 years and received MANY calls on it.

Oct 16, 2009 08:05 AM
Rebecca Gaujot, Realtor®
Lewisburg, WV
Lewisburg WV, the go to agent for all real estate

Some good information...I find more and more people are looking to rent in my area.

Oct 16, 2009 08:27 AM
Ann Heitland
Retired from RE/MAX Peak Properties - Flagstaff, AZ
Retired from Flagstaff Real Estate Sales

Great advice -- I've "re-blogged" it. Thanks.

Oct 16, 2009 01:58 PM
Diane Rice
Rice Prprty Mgmnt & Rlty, LLC, South Holland, IL - Lansing, IL
SFR, SRES, CNC

SUPER POST Leslie! Very worthy to be featured!  Thanks for re posting it in Property Management!  You sure hit on the reality of what those with empty houses could face in renting out their places.

Oct 16, 2009 03:01 PM
Kenneth Bargers
Prudential Woodmont Realty - Nashville, TN

Leslie - Very good information that you have shared with us.  This topic comes up more and more with my sellers and inquiries. 

Oct 17, 2009 02:38 AM
Leslie Prest
Leslie Prest, Prest Realty, Sales and Rentals in Payson, AZ - Payson, AZ
Owner, Assoc. Broker, Prest Realty, Payson,

Steve- thanks for stopping by. It's similar all over, isn't it?

Wallace- Thanks.

Rebecca- Thanks, it IS all over, isn't it?

Thanks, Ann. What are rentals like in Flag?

Diane- Thanks.

Kenneth- Use the info if it helps.

Oct 17, 2009 12:02 PM
Florida Management and Consulting Group Inc.
Florida Management and Consulting Group, Inc. - Coral Springs, FL
Real Estate Brokerage and Property Managers

Great post and good advice Leslie.

I guess the big question as you pioint out is- can people afford it?

Unfortunately for some people it is already too late.

 

Oct 20, 2009 05:30 AM