It is only natural for home sellers to get nervous and consider renting their homes when they aren't selling. This is particularly true of home sellers who have purchased another home and are now carrying 2 mortgages.
If your original intention wasn't to become a landlord, make a list of pros and cons of keeping the home as an investment property, talk to some investors and talk to professional property managers.
Below I have put together a list of pros and cons for considering becoming a landlord if it was never your intention but your home has yet to sell. If you can thinking of additional pros and cons, please add them in your comments.
1. Increases the market exposure as the home is listed twice: as a sales listing and as a rental listing
2. If you get a qualified rental candidate before you get a sales contract, you have gotten rid of the pain of a mortgage on a vacant home.
3. If we get a renter in before the house sells, it eliminates the pressure of paying the mortgage for
both this house and your other house (if you own another home that has a mortgage).
4. Based on your monthly mortgage and the monthly rent, a positive cash flow after paying the
mortgage and taxes. Tenants traditionally pay for utilities, lawn care, snow shoveling. When there is a condo fee or H.O.A. fee, traditionally the property owner pays for that.
5. While the home is rented out you continue to build equity.
6. If you didn't update the home specifically for the sale (i.e. renovate kitchen and baths) and you end up renting the home, then you don't have the risk of those areas being damaged, suffer wear and tear from the renters.
7. You could end up loving be a landlord, having rental income coming in since you are retired and
keep the house as an investment property.
8. The people renting the house could feel settled in, like the house and decide to buy it. So you don't have to go to market again.
9. Even if the renters don’t buy the house, it works out well if the market is better next year or in 2
years when we put the house back on the market for sale.
1. You have to make the time to go through the efforts of setting your home up as a legal rental property in whatever jurisdiction your house is located in and you are subject to whatever inspections, your jurisdiction requires.
2. Get landlord insurance. A cost.-- -- you should get an estimate for the cost of getting landlord
insurance because it is usually higher than the cost of regular homeowner’s insurance.
3. If you need money, you should check and see if you would be able to get a home equity line of
credit with a rental properties. Not all banks let yet.
4. If there are property condition issues which prevented your home for selling, either a renter may tell you that as a condition of signing a lease you have to address these issue(s) and/or the county inspector may note the issue(s) as items you need to address in order for the home to qualify as a rental property. So if you are going to have to address these items anyway, spending money, time and you are only thinking about renting your home because it isn't selling, shouldn't you just address the items now and focus on selling?
5. Based on timing of getting your home on the market for rent, you may not be in the hot rental season…at least hot for families who want to get settled before the school year. So not as many people in the market for single family houses now. You might get a tenant quickly but it could also wind up being a long rental process.
6. Property Management. Once the house is rented you really need to check the house out every
couple of months, quarterly to make sure your tenant is taking good care of the house…unless
you pay a property management company, which takes away from the profit in renting.
7. Disputes between you and your renter over who is responsible for a home repair, replacement
issue. The cost of time and if you have to go to small claims court.
8. If your renters don’t pay rent on time, don’t pay rent, you get into collection issues. How tenant friendly is your jurisdiction and how hard is it to evict bad tenants.
9. If you try to sell next year or in 2 years, showings will be by appointment on times that are good
for the renters. How cooperative will your tenants be when the house is on the market again
when it comes to showing appointments and will the house show well? What incentives do the
tenants have to make the house available and to keep it neat during showings? You may need to
pay them/give them an incentive to make the house easy to show, present well and that takes
away from profit. If it takes away from profit, what is the point in renting if you are going to
have to give money away?
10. If it ends up being a long term rental, you lose the capital gains tax benefit…capital gains
exemption works if you live in a house at least 2 of the last 5 years prior to selling.
11. If you don’t get an offer while your house is being rented, you face the same situation that you are
in right now --the home will be vacant and on the market without rental income. You will be paying the mortgage for this house again anyway without the aid of rental income and who knows how fast or quickly the home will sell the next time around. You are repeating history.
12. Potential costs of having to fix the house up after the tenants move out. i.e. painting the house
after they move out could cost a few thousand dollars.
13. Getting a renter in is a temporary fix to create an income stream for a house that isn’t selling.
Whenever we put the house on the market again to sell or rent if you like renting, you are
always going to have to have money in reserve to pay the mortgage when the house is vacant,
until the house is paid off.
14. A future cost for selling…paying for a radon test before getting the house back on the market.
Starting October 2016, Montgomery County, MD home sellers have to pay for a radon test
before going to market.
15. If you end up renting the house out, we have no idea whether the next time you decide to sell if the market will be better or worse.
Becoming a landlord is a big decision. There are many rewards and risks involved. Before deciding to have your house on the market for rent and for sale I would really think long and hard about it if it was never your intention to be a landlord and you are only doing this as a desperate act because your home hasn't sold yet. Some people are cut out to be landlords and others aren't. Being a landlord can be very lucrative and you have to hope that the tenants pay tent on time and take good care of the home.
Any time you or someone you know is thinking of making a move or wants to talk about the real estate market, please call or email me. I always have time and am grateful for your referrals.
Life is good!
Licensed in MD & DC
Office: (301)921-4500 - ask for Adam
RE/MAX Realty Group
information deemed to be accurate but not guaranteed