It doesn’t take much to turn an ordinary homeowner into a landlord. Maybe you have to move but want to keep your home and rent it out. Maybe you have had a change of fortune, received an inheritance, or bought a new house before unloading the old one. While many people would love to have an extra house to worry about, owning even one rental property can be a headache. Before coming to a decision, you should ask yourself these three things (among other things):
- Is it worth hanging onto this property?
- How will you feel about strangers moving into your beloved home?
- Can you, a novice with a day job, turn a dime on a real estate rental while avoiding bad tenants?
The answer to these questions depends partly on the place itself. Ideally, it’s in a good part of town, and the monthly mortgage payment is low or paid off. The more your place departs from this ideal, the more closely you should look at selling if you can. Whatever your reason for holding onto and renting your house, it won’t work if you don’t treat it like a business.
Can You Do It? Should You Do It?
Calculate Your Nut
That’s the total cost of keeping the place going including mortgage payments, utilities, maintenance, yard work, repairs, and professional services that may be needed such as property management, tax help, or a legal consultant. If you’re renting out your primary residence, you’ll also have to decide whether to rent it furnished or unfurnished. If you leave furniture, be prepared for it to be damaged or at least show some wear. Any personal effects, electronics, fragile items, and anything else that you care about should be placed into locked storage either on-site or at a paid storage facility.
Estimate Your Rent Price
A competitive rent price reflects prevailing rates, so simply adding up your cost of ownership won’t do. Check newspaper ads, call property management agencies, and look online at classified ads such as Craigslist.org, REALTOR.com, or MOVE.com to assess the price range for similar rentals in your locale. Visit a few to hone your research.
Compare The Rent You Think You Can Get With Your Costs
Casey Edwards, co-author of “The Complete Idiot’s Guide to Being a Smart Landlord” and “The Complete Idiot’s Guide to Making Money with Rental Properties” suggests working up two profit and loss statements; a best-case list and a more conservative list that includes everything that could go wrong. Even if the plan doesn’t pencil out, there may be good reasons for hanging onto a rental that doesn’t turn an immediate profit. Among them:
- Tax-sheltered depreciation
- Chance of a profit if property values appreciate
- The need to hold a home for a family member to use later
- The prospect of a worse loss incurred by selling immediately
- The simple desire to add to the value of your estate