My Home Won't Sell; Should I Rent It Out?
If you are waiting for the housing market to turn around in your area, renting out your home can be a good idea, unless you need the equity immediately for the purchase of another home. There are however, many issues to consider before you start looking for your first tenant.
The first thing you need to figure out is determine the anticipated rental income. To determine what you will charge a renter, start by studying the want ads in your area. You may even want to look at a few properties to see how they compare to yours. Be aware of any caps on rental amounts and rent increases for your area. You can verify this information with your state’s consumer affairs office or housing services office.
By now, you are probably aware of how much rental income your home can generate. Determine if this anticipated rental income will cover the ongoing expenses associated with your home. These include mortgage payments, insurance, property taxes and maintenance costs. Ask yourself if you would be able to cover these costs if the property were vacant for more than a month.
Keep in mind that when you rent out your home for more than 15 days during the tax year, it is labeled as permanent rental property. The rent you receive will be declared as income on your tax return and you will owe additional taxes. On the other hand, these costs can be offset by property tax deductions for maintenance and repairs, allowable interest, depreciation and insurance. You can refer to IRS Publication 527, Residential Rental Property for more tax information. Before you make your final decision, it’s always a good idea to consult your accountant.
If given all the financial considerations you do decide to go ahead with renting out your home, there is still one major issue to consider: Are you comfortable being a landlord or having someone else manage your home?
Being a landlord can be very stressful at times. Along with many other inconveniences, it means taking phone calls in the middle of the night if your tenants are locked out, or having to make emergency trips to the store for mouse traps. This is not a venture you want to dive into with your eyes closed.
If you have neither the time nor the inclination to be a landlord, you can also hire a property manager to do the job for you. For a fee (6% to 12% of the rent), your property manager will locate and screen your tenant, collect the security deposit, negotiate the terms of the lease, deal with tenant’s “emergencies,” and make sure that all applicable landlord-tenant laws are complied with. Your real estate agent may be able to refer you to a property manager, or you can contact the National Association of Residential Property Managers if you decide to take this route.