When your circumstances change, such as starting a new job, temporarily relocating out-of-state, having a baby or providing caregiving for an older relative, your current home may no longer fit your needs. Some homeowners may choose to sell or renovate their homes, but others may opt to move and keep the property as a rental, especially if the real estate market isn’t where they would like it to be when they’re looking to sell.
Renting your home may seem like a good idea, but rarely do people see the reality of real estate investing. In their article, 3 Things to Know Before Renting Out a Home USAA recommends 3 things to avoid heartache and headaches.
- Know the costs
- Know the tenants
- Know the law
Let’s expand on their original recommendations.
Know the costs
A property where the mortgage is already paid off creates the most ideal circumstance for a potential landlord. However, for most people that’s not likely the situation. In either case, you need to know all the expenses you will incur before making an informed decision to rent your house. Expenses such as your mortgage payment, property taxes, homeowner association fees, and hazard insurance (homeowners insurance) should all come to mind because you are paying these expenses on a regular basis, but there are other less obvious costs you should consider as well. First, you will want to account for the fact that your house will not always be rented. Experienced investors anticipate yearly vacancy costs, the rental income you won’t receive while it’s vacant. Other expenses you shouldn’t ignore are maintenance and marketing costs. Lastly, you need to determine if being a landlord is an obligation you can realistically handle. Are moving out of state? Do you have the time to screen good tenants, schedule maintenance calls, market the property, or conduct regular visits to check on the condition of the property? If not, you may need to hire a property management company and factor in the cost.
Next, you should research rental rates in your area…and get as specific as possible. You want to find rentals as close to your house as possible, preferably in the same subdivision, that are similar in size and features. Also, be mindful of rental rates during the peak season. Don’t expect to get the same rent if you’re marketing your house in December compared to June. If you decide to hire a property manager they should be well aware of the rental market and can do this analysis for you.
Know the tenants
Bad tenants can cost a fortune. If you pick the wrong tenants, every dime you earn in rental income may go out the window for repairs and other expenses. Sam Dogen, a real-estate expert at FinancialSamurai.com noted in the article 3 Things to Know Before You Rent Out Your Home that, “Once you are stuck with a bad tenant, it often takes at least six months of potentially no rent to get them out.”
Once you decide to rent your property, start by having every prospective tenant complete an application. Include questions about current and previous employers; how long has the tenant been at their current job; current income level; previous landlords, and even personal references. Take the time to do background and credit checks. Although this can be very time consuming, it’s vital to having a successful and profitable investment property.
Know the law
Consult with a certified public accountant and look up all the relevant tax codes related to investment properties and understand your responsibility as a landlord by reviewing the landlord-tenant law governing the rental of commercial and residential property.
Also, be prepared to make timely repairs on the property, to avoid lawsuits from your tenants. Growing up in a builder family, Stephen Hughes, Broker and Property Manager in Raleigh at Ideal Property Group, understands how costly repairs can be in both time and money. “Landlords must repair problems that make a rental unit unfit to live. However, a landlord is not responsible for repairing damages which were caused by the tenant or the tenant’s family, guests or pets. So, make sure you understand the difference and document everything,” advises Hughes.
Have a plan
Saving yourself time and trouble means having a plan. Mitigate your risks by understanding the pitfalls of converting your home into a residential rental property. One way to balance your knowledge base against your time investment is to call upon local Raleigh experts.
Regardless of your unique property needs, iDeal Property Group can assist you. Consider the iDeal Property Group as your comprehensive Raleigh, NC real estate resource. If you need assistance with property management, want to view properties for sale, or tour Triangle area neighborhoods iDeal property Group is your one stop shop. It’s all about providing you the tools and assistance to help you with your Real Estate needs.