This question comes up quite frequently and one that many home owners struggle to decide which is the best choice for them. So what questions might you ask when making the decision to sell or rent out your home?
1) Do you really want to be a landlord?
If you don't want to be involved in those 1 am phone calls that the water heater is leaking or dealing with the "lost" (or late) rent check; then you need to hire a property manager. Property management can cost you 8-10% of the monthly rent off the top.
Even then; the headaches will come up when you have tenant who has a special request; like repainting the bedroom or complaining that the shower doesn't have enough pressure; etc.
2) Be prepared to fix things!
Tenants often do not care for a property like an owner does. Walls and carpets and floors will get dinged and scratched up. Many tenants don't change the funace filter like you would or keep the srubs trimmed like you like - and no; they don't like that color you choose for the bathroom and will repaint it.
3) Do you need a license?
For instance, in Washington DC; you must have a basic business license with the District. While only a couple hundred dollars; it involves a property inspection; lots of paperwork with your typical "efficient" government offices and must be renewed every 2 years.
4) What other laws should I know?
A seller who wishes to become landlord; should also understand the other laws that apply to rental properties and tenants. For instance in DC; tenants have more rights than owners in most circumstances. When you do want to sell; the tenant must be offered the 1st right of refusal. Often; even if they have zero interest (or ability) to purchase; a tenant can hold out for a payoff from the owner or tie-up a sale for months. Lead paint tests are also required in various states depending upong circumstances. Some states; like Maryland; require a landlord to offer a 2 year lease.
5) Does it really make financial sense?
This is the hardest to answer. For instance; right now that market is HOT. Sellers are selling in days not months. Prices are up; interest rates are down. Then again; if you want to rent the home for 10 years; it could also be a great long-term investment.
Or what if you may want to return to DC in 2 or 3 years? You don't want to have to buy the same place again and have to pay the inflated prices. Then again will have outgrown that space you once owned?
6) Have you considered all the financial implications?
So if you think it makes financial sense; are you sure? Typical costs to have aprofessional rent out a property is 1 months rent. Then what if it is vacant for a month, or two? Will you make a enough money to have to repaint and carpet every couple of years? Unlike buyers who will redo things in the home they buy, a tenant will want new paint and carpet and updated appliances. Did you budget for a new roof or HVAC? What about tax implications?
While renting out a property can make sense for many investors; for the average person; sell it if the market is good and hold it if the market is bad.
Comments(1)