Things to Consider Before Deciding to Rent Out your Home
Here is the situation: You have a single-family house and you are considering renting vs selling your home. Renting can be a profitable choice, but it requires an investment of time, effort, money, and organization to make it work. There are several factors to consider when making the rent VS sell decision. Here are some factors to consider:
- Your financial situation
- The market conditions for renting and selling
- Your housing plans
- Your interest in being a landlord
- State and federal income taxes
- Do you plan to return to it one day?
The first step is to determine your costs. You want to charge at least enough rent to cover your monthly mortgage and expenses associated with renting your property. Start with determining your regular expenses like mortgage, maintenance, and homeowners association dues if present. You may need to upgrade your insurance coverage. Your agent can advise you about adding landlord insurance. Landlords’ insurance is an insurance policy that covers a property owner from financial losses connected with rental properties. The policy covers the building, with the option of insuring any contents that belong to the landlord that are inside. As a rule, landlord insurance costs about 25% more than standard homeowners insurance.
Here is a list of typical expenses to factor in:
- Advertisement for tenants
- Background Checks
- Insurance standard, property insurance
- Insurance liability
- Property taxes
- Maintenance and repairs – Lawn/ gardens, gutters, chimney cleaning, furnace, hot water heater, air conditioning, roof, window repairs/replacements, washer, dryer and dishwasher
- Utilities – Gas, electric, water
- Extras – Cable TV, Wi-Fi, security system
- Property management
If you’re renting the house furnished, make sure you’re covered for the personal possessions you leave behind (landlord insurance). Prepare a detailed inventory of household items. If you’re renting the house unfurnished, figure in the costs of moving and storing your items if needed.
Check out your prospective tenants! You will want to conduct background checks: credit reports, eviction reports, and criminal background reports. Be sure to get your prospects’ permission.
Account for maintenance and upgrades that will come with being a landlord. Even with these background checks, you can’t be completely sure your renters will take good care of your home. You will want to arrange for someone to keep an eye on the property (if you are not able to do so) to be sure it is well taken care of. If it is being neglected, you’ll want to know about it sooner rather than later, since it could be a warning sign of more trouble down the road. Even if the renters are conscientious, problems can crop up: HVAC systems may fail; roofs may leak; washing machine hoses can burst and cause flooding damage… If household systems or appliances need repair or replacement, you’re better off spending the money up front, before the fix becomes an expensive emergency problem.
If you don’t want the headaches you can always hire a property manager to oversee the property and take care of the details. Some companies charge a percentage of the rental fee, others charge a flat monthly fee, based on the extent of services they provide, which mainly includes general maintenance, rent collection, and—if necessary—eviction. Many property management companies maintain 24-hour emergency service and a roster of approved service vendors, so they can take care of plumbing or electrical problems and then they bill you later.
As a landlord it is necessary to keep scrupulous records. Whether or not you use a management company, you’ll have to keep extensive business records. Save receipts for any expenses and file them carefully. The IRS treats maintenance expenditures, like a new hot-water heater, differently from capital improvements projects, such as a new deck or patio. You may want to consult with a tax professional. Keep the two types of receipts separate since it will make tax preparation easier for you..
Decide if you even want to become a landlord. Being a landlord means that you will still have to maintain the house. When the plumbing springs a leak or the washing machine hose breaks you will be the one that gets the bill. If you don’t want any of these hassles or headaches, maybe you should opt to sell your house vs renting it! Or you can save yourself some major headaches if you hire a property manager but it will, of course, cost you!