Don’t become an accidental landlord… or should you?
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Should I rent my home? We get this question a LOT. Thinking about renting your house can be both exciting and daunting. Thinking about renting it after it sat on the market and didn’t sell is usually the latter. We’ll talk more about how you ended up here (and how to avoid renting) at the end of the article.
Believe it or not, there are benefits to becoming a landlord (even on accident). First, I’ve read many times that keeping your first house and renting it after you move is one of the best ways to build long-term wealth, and it gives you a potential asset to pass on. Too, after you have your first income-producing property, it’s often easier to acquire your second, thus building your portfolio.
What are the concerns with becoming a landlord and owning rental property?
There’s plenty of things to take into consideration when it comes to investing in real estate before you have your REALTOR® put a sign in the yard.
Check with your homeowners insurance agent. You’ll need to upgrade your policy to cover renters, which typically comes with a nominal price increase. This is a must. If there is an event requiring a claim, and you haven’t upgraded your policy, there is about a 100% chance your claim will not be paid.
Will you be able to afford to cover the mortgage payment with the current rental market?
Speaking of the rental market- can you charge enough to A. cover the mortgage B. set some money aside for repairs/upgrades/vacancy and C. make a profit (remember that B and C are not the same!)
Can you afford to pay the mortgage for 2-3 months if the property sits empty between tenants?
Do you have what it takes to be fair, firm and assertive? This is a tough business, and tenants can walk all over you and your generosity. This needs to be treated as a business. You’ll need to be able to stand up for yourself, and even evict a tenant if needed.
Speaking of #5, let’s take a moment and just be very frank: evicting someone means kicking them out of the place they called home. Can you handle that?
This is a biggie: Can you get approved for a new mortgage if you decide to keep your current home and rent it? You’ll need to speak with an experienced mortgage professional on this before you let the first potential renter come look.
10-20% of the rent is a typical recommendation of how much to set aside for repairs. If you have an older home, expect it to run on the higher end. A home warranty can also be a good investment to help keep some repairs within the budget. Income tax/capital gains tax also need to be paid, and that will vary depending on your personal situation. Talk to your tax professional for more on that.
So, how did you end up here?
Most people end up becoming landlords because either their home didn’t sell and they still want/need to move, or they bought a home to renovate and/or rent it. If you’re in the first group, I ask: did your agent talk to you about why your didn’t sell before the listing expired? This is pretty key and your agent should have this conversation with you before you start getting calls from other agents letting you know your home came off the market.
Granted, sometimes it’s not the agent’s fault, but it’s just been sitting there on the market. We have found that the most beneficial remedy here is a fresh, new approach to marketing, including our proven plan to get your home sold. We have a full-time marketing director on our team, and she’s one part of our approach to getting you from listed to sold in record time.
If you’d like more information on renting your home, figuring out why it didn’t sell, or investing in real estate, call us! 985.707.5270
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David McLaughlin is a 15-year veteran of the real estate industry in Louisiana, serving the Greater New Orleans area. Known for exceptional communication , analytics, and problem solving, David is proud to be able to find solutions to any challenge and is known for pulling some pretty big rabbits out of some pretty small hats. He truly loves his career. He can be reached via email or by calling 985-707-5270.
