Should You Rent Your Home?
If you, like 68 percent of Americans, own your own home, the thought has probably crossed your mind: if you were to be offered your dream job out of state, should you sell or rent your home? Naturally there are many factors to weigh before making such an important decision.
First, you'll want to think about your reasons for keeping ownership of the home. Do you like the home so much that you want to hold on to it in case you ever move back? Are you looking for an extra tax break through property depreciation? Do you want to use the home as a basis for retirement investment?
These are all fine reasons for retaining ownership, but there are other factors to consider that may outweigh the perceived benefits. For instance, are you prepared to be a long-distance landlord, hiring someone to maintain and manage the property for you? There are other costs involved as well, such as advertising costs, turning costs (cleaning and painting between tenants), property taxes and insurance, utilities paid out of your pocket when your property is between tenants, and accounting costs. In order to assess these costs, you should research the numbers in your market. Expenses often run 30 to 40 percent of income before the monthly mortgage cost.
The one time you probably would not want to rent out your property is if you’ve recently purchased it. Unless there’s a housing shortage in the market, the costs will outweigh the benefits to rent it out.
The ABCs of Property Rental
Okay, so you’ve decided to rent out your home. Where do you start? First, you need to get the house into tip-top shape in order to get the highest reasonable rent. This includes:
l Interior painting — your best bet is to use neutral colors. Don't forget to patch cracks and nail holes in walls.
l Exterior painting or siding — again, a nice neutral color scheme is best.
l Prefessionally clean or replace carpets.
l Make sure your home insulation is adequate to cut down on utility bills.
l Don’t leave any furniture or accessories behind that you want to keep. Furniture in rental properties gets burned, scratched, dented, broken, and sometimes permanently “borrowed.”
l Clean the house from top to bottom. Consider hiring a heavy-duty cleaning service (not a maid service) to do it for you.
l Fix whatever needs fixing, and tune up and clean appliances. If they are part of the rental agreement, you’ll be responsible for fixing or replacing them if they break down.
l Set the proper rent price. While cleanliness, attractiveness, and amenities are important, location still rules when setting prices. Contact a property management company to find out prices they’re seeing in your area, and look in the real estate section of your Sunday paper for similar houses on the rent market. If you set your price too high, it’s unlikely that you’ll find a tenant. If you ask too low a rent, prospective tenants may wonder what’s wrong with the place.
Should You Hire a Property Management Company?
This is especially important if you’re moving far away from the house and won’t be able to keep an eye on things. It’s not absolutely essential to hire a property manager, but it can make your life a little easier. Points you’ll want to cover with your new property manager:
l Tenant screening. If you’re interested in keeping your house in good condition, your property management company should have a thorough screening process in place.
l Contact. Can you phone, email, or fax your property manager? Do they have a 24-hour emergency number?
l Experience. How long have they been in business? Are their employees professional and experienced?
l Maintenance. How long does it take to repair problems? Is maintenance handled internally or through an outside contractor?
l Reporting. Ask if you will have access to financial reports.
l Evictions. How are they handled?
l Insurance. Determine how much insurance the company carries.
l Contract. Ask for a property management agreement in writing.
l Inspection. Does the property manager or an outside party do the inspection?
l Customer service. Who is your point of contact at the company? How do they take care of tenants?