Know Your Stuff Before Renting Out Your Home

Rent Your House

Do you know your stuff?

Home ownership was considered to be the American Dream for decades.

The ideal of a middle class lifestyle, a car, a home, education and a well-paying job, were the foundational principles of public policy for much of the 20th century.

The financial crisis of 2008 and the ongoing real estate crash proved this ideal to be ultimately hollow for some. Renting has, in some pockets, become much more appealing than owning.

Many renters are former owners who suffered from the effects of the crash. From 2006 to 2009, home prices fell 32 percent, according to the Case-Shiller index.

At the same time, renting rose by 10 percent from 2004 to 2009, according to a 2010 study conducted by the Joint Center for Housing Studies of Harvard University. Renting is expected to be more popular than ownership, at least for the time being. Yet there are dangers of renting out a house that are possibly greater than the dangers of owning a home.

The lingering real estate crisis, involving falling prices, mortgage fraud and the incredible documentation debacle, puts owners wishing to sell in the position of renting to wait out the market. Renting out a house is a risky proposition and there are factors to take into account before becoming a landlord.

Breaking Even

The most common reason to rent out a home is to make enough money to cover the monthly mortgage payment. Most landlords in the current real estate environment do not hope to make a profit from their rent, but simply make enough to pay the bills and stay solvent.

Renting helps them do this. Even if they only have enough rent to cover the mortgage payment, the money they save can go to some other expense such as paying down debt. Before renting, check the rental market and see if current rents are enough to cover the mortgage payment. If they are not high enough, covering a portion of the mortgage payment may still be helpful.

Finding A Tenant

No landlord wants to be stuck with a tenant that walks out on their commitment. Some landlords have horror stories of tenants who not only walked out on them but also vandalized their property. Finding a solid tenant is the most risky aspect of renting.

Prospective landlords must check the tenant laws in their state and be wary if they are pro-tenant. Some states make it illegal to evict a tenant without giving them 90 days notice along with the proper documentation. This rule applies even if the tenant has damaged the property or failed to pay rent.

The landlord must protect himself by establishing a legally binding contract with the tenant. This contract should clearly state that all miscellaneous loose items should remain in the home if the tenant departs, such as appliances.

Property Upkeep

The landlord is responsible for taking care of the property. The tenant is merely responsible for not damaging any of it. Landlords may expect to spend about 10 percent of the rent on this expense. They can perform their duties if they do not know about gardening, landscaping or basic repairs by hiring a property management service.

Even if the tenant is responsible for any damages, the landlord is still liable for the necessary repairs. A quality property management service may be able to do a much better job than the landlord can of adequately maintaining the property.

Downsides

Every landlord has to prepare for the worst when considering whether to rent a property. The length of time the landlord can afford to have the property sit vacant is a major factor. The amount of money the landlord can dedicate to litigation costs if the tenant turns out to be less than desirable is another.

Waiting out a market by renting is a strategic decision, but there is an element of chance involved. Multiple elements have to come together for a successful renting relationship to exist. Landlords must be prepared.

Did you know your stuff before renting out your home? Share your experience in the commment section below.

Photo by mandiberg



Last Edited: July 21, 2014 @ 10:42 pm The content of ptmoney.com is for general information purposes only and does not constitute professional advice. Visitors to ptmoney.com should not act upon the content or information without first seeking appropriate professional advice. In accordance with the latest FTC guidelines, we declare that we have a financial relationship with every company mentioned on this site.

Comments

  1. Screening perspective tenants is the key to a good experience. If you do not know what to do, check with your attorney or CPA. When you are ready make your choice of tenant, you should visit the tenant in their current location. Why? So you can see how they treat their current place. Checking a tenant is the most important thing you can do to avoid future problems. Take the time!

  2. A good tenant is worth their weight in gold. It pays to do a good job of screening.

  3. I agree, we have been renting our house for the past 5 years and finding good tenants is the only reason we are still sane.