• English
  • Español
AGENTS: Did you know you can share a personalized version of this post? Learn more!

Things to Consider Before Renting a Home You Can’t Sell

In this difficult housing market, more and more homeowners are considering renting their house instead of adjusting the price. We strongly believe that residential real estate is a great investment and therefore can understand this thinking. However, if you have no desire to actually become an educated investor in this sector, you may be headed for more trouble than you were looking for.

Before renting your home, you should take the following steps to make sure this is the right course of action for you and your family.

Set a consultation appointment with an eviction attorney

People rent out their homes assuming that every tenant will pay the rent every month. We must realize, because of the current economy, there are millions of people not paying their mortgage. There is a chance you may rent to someone who at some point can’t (or simply won’t) pay you the rent. Understand what the legal challenges of eviction could potentially be before deciding to rent your home.

Interview property managers

If you are not a full-time investor, hire a professional to handle the property. You need someone to find a qualified tenant, collect the rent and manage the problems. You don’t want to have to make collection calls. What would you say if a tenant told you that they had enough money to either buy food for their children or pay you your rent but not both? You need a person experienced with these situations to help.

You also don’t want to receive calls at all hours of the day and night regarding maintenance issues or challenges a neighbor may be creating for your tenant.

Create an honest budget

Sure, you will receive revenue in the form of rent. However, don’t forget you will also have expenses. Some of the expenses you should consider:

  • Mortgage Payment (unless there is no mortgage on the home you will rent out)
  • Property Taxes
  • Maintenance Expenses such as repairing or replacing: roof, heating/air conditioning unit, appliances, etc.
  • Insurance – Check with your insurance company who may suggest or demand that you increase your liability coverage.

Bottom Line

Again, renting out residential real estate historically is a great investment. However, it is not without its challenges. Make sure you have decided that you want to rent the house because you want to be an investor, not because it looks like an easier way out than selling the house.


Members: Sign in now to set up your Personalized Posts & start sharing today!

Not a Member Yet? Click Here to learn more about KCM’s newest feature, Personalized Posts.

8 replies
  1. Carl Gustafson
    Carl Gustafson says:

    The things to consider before renting had me asking more question. What are the tax considerations?
    One question I have asked, but still waiting for answers, seller has house they are upside down on. Can they depreciate the house from the original purchase price or do you have to use current value. If they can depreciate from original purchase price then it might be a way to recover the loss of value. This question needs a good tax accountant to answer.
    All comments would be appreciated as I have a couple of people considering the rent option.

    Reply
  2. Cosmo
    Cosmo says:

    You depreciate from purchase price not appraisal value and as you note it can be a great return in this market. Again validate – any accountant can confirm this in a few min.

    The #1 rule for anyone renting their home is – Run the credit check yourself with your own credit service. Have it in your hands/ Have the renter pay the fee (be nice and give them a copy). Do not accept anyone else getting it for you. A good long credit history is the best reference. A credit check will filter out 99.9% of the unknowns about a tenant. I run the check on all the adults on the lease. Document ID – Drivers license etc. and photocopy ID.

    The other variables in the write up are true – Taxes and maint. costs etc. The primary difference is of course if you are paying for those things or the rent yo collect is paying for them.

    Always have a lease and have every adult who lives there sign it.

    It has never been easier to weed out bad apples with credit checks.

    Reply
  3. Dan
    Dan says:

    You should also asses your end game. Are you hoping to make monthly income ongoing? In which case make sure you will end up after expenses and tax considerations with a gain each month. Or are you hoping the market goes up and you will make more later. Consider what your time frame is and what will happen if it goes down more. Also consider about 1 month rent per year to allow for maintenance or potential between tenant costs like paint etc.
    It can be a good thing if you have planned well, understand the costs an have a realistic expectation. Otherwise it can be te biggest mistake you will ever make.

    Reply
  4. Cathy DeVore
    Cathy DeVore says:

    If you are considering renting your home because you are having difficulty selling it in the current market there are several things to take into account.
    1.) What is your end goal? If ultimately you want to sell the house…what is your opinion of the overall market going forward? Unless you believe the market is perched upon a recovery, renting only prolongs the inevitable and creates a lot of hassle and wear and tear on your home. If your bathrooms are slightly dated, they are only more so 2 years later!
    2.) Houses with tenants in most cases do not show as well as owner occupied homes. Their furniture and possessions are usually not specific to the house/style. They are not the seller, so when it is time to clean up to show, tenants rarely go the extra mile to get the house “show ready”. Restrictions are often placed upon access to potential buyers and brokers. All of this ultimately leads to a lower sales price.
    3.) Selling a tenant occupied house in a sideways or down market ultimately creates a greater loss than selling your house in the current market. Yes reducing the price by $100,000 is a lot of money…but after assessing the tax implications and wear and tear of renting, combined with marketing a tenant occupied home you may still be selling for $100,000 less than your current ask and per prior comments the taxes, mortgage payments, insurance, home repairs and other fees add up quickly. To rent and hope the market improves is a dicey strategy. “Hope” is never a good word in a business plan!
    We are surely in volatile economic times but interest rates are fantastic and there are buyers out there. You don’t have to give your house away, but you do have to price it realistically. The end of August may not be the hotbed but after Labor Day the market should grind forward again.

    Reply

Trackbacks & Pingbacks

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *