Trying to decide if you should sell your home or rent it out? Taking the rent route, means you are opening up your own rental business. There will be many new task & job responsibilities. Your home becomes an asset on your household's balance sheet. Sound serious & a little scary? Here are a few things to consider.
Higher insurance rate: When you notify your insurance company of the change in use for the property, your insurance will likely go up. Typically a higher rate is charged for vacant properties, which may be the case while you are looking for new renters.
Carrying cost: Will the amount you get for rent cover your mortgage payment? Maintenance & management cost?
Vacancy cost: You should budget for some vacancy cost for:
- preparing the home for a renter
- looking for a renter
- repairing, improving & cleaning after a renter vacates the property
- while you are trying to sell the home
These vacancy costs can add up quickly. Many homeowners' vacancy cost include not only the mortgage payment (principle & interest, taxes, insurance) but also utilities & maintenance of the property (mowing, snow removal).
Applicant management (time & money): Someone will have to market for applicants & manage the interview process. This includes: fielding calls about the property, scheduling showings, meeting applicants to see the property, reviewing applications, credit & background checks, etc. It is a ton of work. A property management company is always an option but not free!
Property maintenance: Do you plan to have a DIY (Do It Yourself) maintenance department? Meaning YOU do the maintenance for your renters. Or will you hire a property management company to handle this? What will happen if the toilet overflows on a Monday morning? Or the hot water heater dies on Friday night? Some people have a hybrid plan in place of using a warranty company to help with the management of property maintenance. No matter which way you go, there will likely be an expense each year.
Depreciation or replacement cost: Is there a chance the AC unit might call it quits in the next year? Or will renting it out eat through the life left in the roof, requiring you to replace it before you sell?
Hope for good renters: Not only do you hope for good renters that don't destroy your home. You also have to hope that they will be great about keeping things tidy and showing the home if you are going to try & sell it while they still live there.
I really made this all sound so glamorous, right? Renting is not all doom & gloom. Many people hold homes as investment properties & do well. My friend Christine was a landlord for over a decade. She made it work by taking it seriously & putting heavy consideration into applicants. She mentioned that taking her time to identify the right applicants really helped in her success.
If you would like to chat about your specific situation, call me (816-200-SADY or 816-200-7239) or send me an email e@eSADY.com.