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 another job and chose to move, 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 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.
You will have to take into account what your monthly payment is vs the average rental rate your home could get , and consider the additional costs for repairs, property management fees, and risks. It is important to have a real estate professional that you trust to give you correct rental comps and manage your property effectively and efficiently.
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 Professionally clean carpets, if you decide you want to replace them make sure to go for a rental quality carpet that is less likely to absorb stains and also is hard to see stains in (you can get some speckled carpets like what you see in apartments that do a good job of hiding what would otherwise be permanent stains)
l Make sure your home insulation is adequate.
l Don’t leave any furniture or accessories behind that you want to keep.
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.
l Make sure the property is safe and secure. As a landlord you can be held liable if someone gets hurt due to loose stair rails or lamps falling and hurting someone, as well as if the home is not secured. All windows and doors must lock, and both front and back doors must have a deadbolt lock that does not allow key access.
l Consult an attorney to make sure you are following all the laws, and if you would like you can have them write up your own contract instead of using the standard TREC Promulgated contract.
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. Hiring a property manger can make your life a lot easier.
l Accreditation. While not imperative, it’s wise to deal only with firms that are Accredited Management Organizations (AMOs).
l References. Don’t just ask for them — contact them and ask pointed questions.
l Tenant screening. If you’re interested in keeping your house in good condition, your property management firm 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 Vacancy rates. Find out the average time it takes to turn the property when it’s vacant.
l Maintenance. How long does it take to repair problems? Is maintenance handled internally or through an outside contractor?
l Reporting. Ask if it’s standard procedure to get a monthly report and copies of all bills.
l Evictions. How are they handled?
l Insurance. Determine how much insurance the company carries and through whom they carry it.
l Fee structure.
l Inspection. Does the manager or an outside party do the inspection?
l Customer service. Can you talk to the owner of the company if you want? How do they take care of tenants?
l Special services. Are there any incentives or special services they offer?