You’ve found your new home. It’s perfect, and you can’t wait to move in. Yet, even though your new home has all the bells and whistles you’ve been dreaming of, the thought of letting go of your current home feels a lot like having to throw out your favorite sneakers. You know it is time to say goodbye, but it is so comfortable, and familiar… and you are going to miss it.
But what if you didn’t have to let go of your current home? What if you decided to keep it and rent it out? Would it make sense for your situation? Are you cut out to be a landlord? If you’re wondering if becoming a landlord is a smart decision for you, it’s best to first weigh these three considerations carefully.
Will You Make Money by Renting Your Home? You’ll want to run some basic numbers to determine whether you can secure enough rent to cover your mortgage on your home each month. However, there’s a lot more to being a landlord than just collecting rent. Keep in mind you’ll need to continue paying for repairs, taxes, insurance, HOA fees (if applicable), along with absorbing costs of vacancy. If you find that becoming a landlord is going to cost you money each month, it is probably in your best interest to sell your home with the help of an experienced REALTOR®. On the other hand, if the numbers indicate that even with all expenses of maintaining the property factored in, you’re still turning a profit; becoming a landlord may be a very smart decision.
Are You Ready to Deal with Tenants? There are many wonderful tenants, who you’d undoubtedly love to have living in your rental property. There are also some tenants who can make your life a nightmare. Exceptionally messy tenants for example, may cause you great stress. Noisy tenants who irritate neighbors may also make your life difficult. Tenants who are chronically late in paying rent may cost you sleep. As a landlord, unless you choose to turn the responsibility of renting your home over to a property management company, the onus will be on you to successfully work with your tenants. If you don’t feel ready to handle any of these situations, becoming a landlord is probably not in your best interest.
Do You Have Adequate Time to Be a Landlord? Should you make the decision to become a landlord, you must accept that you’re agreeing to make a significant time commitment. If you personally manage your property, you’ll need to plan to be available to tenants, should emergencies arise. You’ll need to have time to show the home during vacancies and repair the home between tenants. You must be willing to spend time finding contractors or vendors (unless you’re planning to make repairs, clean, and update on your own). You’ll need to set aside the time to learn to read credit reports, and/or background checks on potential tenants. You’ll also need to become familiar with laws and regulations in your state regarding your responsibilities as a landlord, and the rights that your tenants have while renting from you.
So, is becoming a landlord right for you? If you answered “Yes” to the three questions above, keeping your home and renting it out may be a natural fit for you. However, there are still many additional and important items to consider before ultimately deciding whether to sell or rent your home.
Subsequent considerations may involve analyzing market trends to see if the area where your home is located is appreciating in value, or depreciating. Likewise, you’ll want to crunch additional numbers to determine if you will make a profit if you sell now, and if so, how much of a profit you’ll make. You will want to know if you’ll be taxed on the profit from selling your home, and weigh that against keeping it and renting it. Suffice it to say, many of these financial considerations will be best decided through consulting with a trusted advisor such as your CPA or financial advisor.
If, on the other hand, you answered “No” to any of the three questions above, it’s unlikely that you will find becoming a landlord an enjoyable — or profitable — endeavor. In that case, it’s time to turn over the responsibility of selling your current home to an experienced REALTOR® who can ensure that you get top dollar for your sale.