More and more often, homeowners are choosing to rent their home instead of sell when they are ready to move on. In fact, in a recent survey, 39% of buyers prefer to rent out their last residence rather than sell when purchasing their next home. The study cites that many homeowners were able to refinance and “locked in a very low mortgage rate in recent years. That low rate, combined with a strong rental market, means they can charge more in rent than they pay in mortgage each month, so they are going for it.”
While this may make sense for many homeowners, it isn’t for everyone as it can be emotionally and monetarily draining. So how do you know if you are ready to be a landlord? Ask yourself these questions first!
1. Do you have a strong emotional tie to your home? If so, you may want to consider using a property management company to act as an intermediary.
2. All home will need repairs at some point. Who will take tenant calls when necessary repairs arise? Do you have a list of craftspeople readily available to handle these repairs or are you handy enough to do most repairs? If you are handy enough, do you have the time to drop everything and fix whatever is wrong?
3. Will you allow pets? Cats? Dogs? How big a dog? What size of security deposit would put you at ease?
4. Have you talked to your insurance company about a possible increase in premiums as liability is greater in a non-owner occupied home?
5. Have you interviewed a few experienced eviction attorneys in case a challenge does arise? This is a much more difficult process than most people realize.
6. Because of the economy, many homeowners can no longer make their mortgage payment. What percent of tenants do you think can no longer afford to pay their rent?
7. How will you respond if your tenant says they can’t afford to pay the rent this month because of more pressing obligations? This happens most often during holiday season and back-to-school time when families with children have extra expenses.
8. How will you actually collect the rent? By mail? In person?
9. How often will you do a physical inspection of the property? How will you react if they physically destroy your property?
10. Will you alert your current neighbors that you are renting the house? Do you have a neighbor you can trust to keep an extra eye on the house and alert you to potential issues?
These are only a few of questions you need to ask yourself before renting your home. Historically, renting your home has great investment potential but it is not without its share of challenges. If you want more help deciding if you should be a landlord or not, give me a call and I’d be happy to sit down and discuss the pros and cons with you.