5 tips before you rent out your home
A real estate agent cherishes the one-story ranch house she has owned and babied for 14 years. To enhance her place, she recently painted the entire interior. She also sanded and polished her hardwood floors and expanded the kitchen, making it light, bright and open to the dining area.
This agent can’t bear the thought of selling her beloved sanctuary. But that sentiment is now competing with her engagement to a man from another city where she plans to move, however temporarily. So, to buy time before making a final decision, she’s placed the property on the rental market.
“She’s holding her breath that a rental will work out without any serious problems, and so am I,” says Elizabeth Weintraub, a colleague and friend of the property owner.
Weintraub, a real estate broker who has sold homes since 1979, says the odds are good her friend will do well as a landlady because of her background in the housing field. But she said many homeowners who convert a residence to a rental property are more naive about what that entails.
For instance, Weintraub tells the true story of a couple of clients who had a terrible experience renting out their house to a pair of doctors. When it came time to sell the place, the doctors were so angry at being uprooted that they poured castor oil all over the white wall-to-wall carpet. In recent years, many local governments have tightened regulations protecting tenants. As Weintraub says, longtime renters are typically much more familiar with these regulations than are first-time landlords, which puts them at a disadvantage if a dispute develops.
Here are a few pointers for homeowners considering a temporary rental:
Inform yourself about your local rental market.
Sid Davis, a real estate broker and author of “A Survival Guide to Selling a Home,” says that before deciding to convert your residence to a rental, you should make sure the numbers work for you.
As he notes, most large realty firms have rental departments that can help you assess the relative strength of your local market. Agents who list many rentals on the Multiple Listing Service can quickly estimate how much rental income your property could command.
Advertising (online or in print) can also help, Davis says.
Survey the ads to see how numerous they are for your type of property (single family, townhouse or condo/ apartment) and going rents.
“You might even wish to run a test ad to check out your rental market. This is not unethical, so long as you don’t mislead any potential tenants,” he says.
Consider professional management.
Mark Nash, a longtime real estate broker and author of “1001 Tips for Buying and Selling a Home,” says it could be sensible to consider engaging a professional manager to oversee the property.
“Many people find it annoying to be a landlord. It’s like being a parent,” says Nash, who owned several rental units for a period spanning 11 years.
He says the sole downside of hiring a good rental manager — who is best found through personal referrals — is that this service will cut into your rental income. That could pinch your budget if you’re operating with a narrow profit margin.
Investigate the financial implications of renting.
Most landlords want to be sure they’d have a positive cash flow from their rental, meaning they’ll bring in more than enough income to cover their mortgage payments after taking into account property taxes and insurance costs.
When assessing the financial impact of converting your place to a rental, even a temporary one, Nash says you should be sure to factor in home maintenance expenses.
“Upkeep can be a big item,” he says.
You’ll also want to consider the tax implications of renting out your home. To do so, Nash recommends you call an accountant for advice.
Realize you’ll likely need to remove tenants before you sell.
Do you intend to rent out your place temporarily with the expectation that you’ll probably sell in the future? If so, Davis says you should be aware that it can be tricky trying to sell a home when it’s occupied by tenants.
To avoid this problem, Davis recommends you plan to have your property vacated for at least a month before it hits the market. That way you’ll have time to paint, clean and do repairs before it’s available for showings.
Make sure you have the right temperament.
Once a home is sold, most people close the door and move on emotionally. Not so when you’re renting out a property, Davis says.
“Psychologically as well as financially, people still have an umbilical cord attached to a property they own while tenants are living there. If you know you lack the nerves you need for renting and yet you must move, you might be better off selling without delay,” he says.
Many homeowners who convert a residence to a rental property are naive about what renting entails, says Elizabeth Weintraub, a real estate broker.