Owning a rental can be a rewarding way to earn a little additional cash or build equity in a home while you're living elsewhere. However, being a landlord isn't for the faint of heart. There are important things to know before you make the leap.
1. Turning your home into a rental property can have tax implications when you go to sell the property down the road. It's important to take some time to do your research before you rent. I always advise clients to talk to an accountant and get the details early. When taxes are in question, it's always best to know what to expect before the bill arrives.
2. You have options for property management, and there's plenty of help available. Some owners are very hands-on and want to manage the project all on their own. Others would just like help prepping, advertising, finding, screening, and placing tenants before taking the daily management over themselves. Some owners want to hand the property over to a pro and let them take care of everything. Think about it and ask questions. You should be comfortable with how things are run.
3. Cash flow is rarely realized. There are additional fees and expenses when a home is a rental, so many rentals with a current mortgage don't provide cash flow to owners. Typically, my owners are looking at rent that pays their mortgage and property management expenses, and provides a little extra to cover maintenance costs. When you're still paying a mortgage on a rented property, the idea is to build equity vs collect a positive cash flow.
4. Tenant occupied homes tend to incur higher maintenance costs for a few reasons. Owners often take better care of a home than tenants do. In addition to that higher standard of care, owners tend to address maintenance issues quickly and many owners tackle minor to moderate projects on their own. Tenants don't always report or address concerns immediately, and with a tenant in the home and a property manager overseeing maintenance, owners end up hiring professionals for all work. Even a simple task can become pricey when a handyman, plumber, or electrician enters the mix. Rental owners are wise to set up a savings account to address rental maintenance and repairs.
5. Routine maintenance and small repairs are one thing, but before turning a home into a rental, think about the larger systems in the house. Furnaces, air conditioners, hot water heaters, roofs, and siding all have limited lifespans. The same can be said for kitchen appliances If your property has larger systems that are approaching the end of their estimated life, you can easily burn through any small rent profit with sudden and large expenses. Know the age and condition of your large and expensive systems, and consider their expected lifespan when weighing the pros and cons of selling vs renting.
6. If you plan to move back into the home at a later date, understand that the home will look and feel a little different at first. There will be regular wear and tear on the home that wasn't there when you left. A tenant may have painted a room a hideous color (even if painting wasn't really allowed), accidentally torn the beloved wallpaper in your favorite space, or used a home fragrance that you despise. If the garden was your sanctuary, you may return to find it struggling if the tenant wasn't particularly adept at plant care. Even lacking any true damage or neglect, the home will have different feel after being lived in by others. Plan ahead to renovate, rejuvenate, or restore the home to some extent, and you'll find yourself reclaiming it. Planning a project or two is also just a fun way to prepare to move back home. If big renovations are haunting your dreams, you're probably best waiting to complete those when you move back home.
7. The rental and sales markets will change over time. You'll want to pay attention to them to ensure that you hold when the time is right and sell when the time is right.
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