Renting out your property can be a wise, rewarding financial decision. Before you decide to rent out your home, know the pros and cons of being a landlord and some of the key responsibilities you will face along the way.
The Pros of Renting Out Your Home
Renting can provide homeowners with additional income. This can be achieved if the monthly rent is higher than the monthly mortgage and utility payments. With this added surplus of money, homeowners have the potential to use these extra earnings for a down payment on another home in the future. Or the additional income can be used toward repairs on the rental to upgrade the value of the home when you decide to sell.
Renters also receive tax benefits. The IRS deems necessary improvements and maintenance costs as tax-deductible for renters, as well as insurance and even interest on your mortgage.
You Can Still Use the Property
If you rent out your property seasonally, you can use it yourself 14 days out of the year—or 10% of the days you rent it out to others—while still being able to deduct your expenses for tax purposes.
If you’re very attached to your home or the location, it can be comforting to know that you can return there each year and still call it “yours.”
You can also treat an area of your home, such as the garage or basement, like a rental unit. It is possible to write off a percentage of the mortgage interest and other expenses against this income. Before jumping on this option, however, make sure to do some research and find out any zoning rules in your locality that may exist against renting out extra space.
Rental Properties Are Tangible Assets
Real estate isn’t an intangible asset like buying a stock; it is tangible, meaning that you can use it. It’s an investment that you and your family can physically see, use, and make profits on for years to come.
If you sell your home, you forgo the consistent earnings that having a rental property brings over time, and you may have to pivot into other investments.
The Potential Cons Of Renting Out Your Home
Renting Out Takes Time
Because real estate isn’t a liquid asset, it can take months to close a lease and see profits. The same is true if you were to sell your property.
Luckily for landlords and sellers, Virginia and much of the US are still in a seller’s market. This means that buyers and renters are grabbing up real estate where they can get it—more quickly and at higher prices—due to low housing inventory.
So while market conditions are ideal for sellers right now, don’t forget that it can also take time to find the right tenet. Just because many options are available doesn’t mean you have to or should jump on the quickest or highest bidder. If you don’t properly vet your tenant, you run the risk of renting to someone who won’t pay rent on time or who damages the property beyond normal wear and tear. Keep reading for tips on how to find the right tenet and instill accountability.
When you’re looking to sell your property, you don’t have to worry about interacting with the potential buyers after the sale has been made. As a renter, however, the relationship you have with your tenants will be important.
Some ways to vet potential renters and create some accountability include doing a credit check, creating a leasing form that details your rules about potential occupancy, and chatting with their previous landlords to determine reliability.
Despite you doing your best to vet your tenant, it’s still possible that your tenant won’t follow through on paying rent on time and treating your property with the respect it deserves. Be knowledgeable about how to legally evict a tenant if necessary.
To cover yourself, it is important to have your tenant(s) pay a security deposit, which serves as a means to fix or replace something in a rental unit that was damaged, lost, or stolen by the renter.
If you were to sell your property, property upkeep would be the sole responsibility of the new owners. When you rent out your home, maintenance usually falls on you as the landlord.
Be mentally and financially prepared for small but periodic maintenance issues, such as lawn maintenance, problems with plumbing, or washer and dryer replacements. Occasionally, more serious maintenance issues like replacing the roof or updating the electrical wiring may also crop up. The age of your property and its appliances may give you a rough idea of how much maintenance to prepare for down the road.
Uphill Taxes and Premiums
Over time, taxes and insurance premiums tend to increase. This is why it’s important to be hypervigilant about the costs associated with continuing to rent out your property. To retain a profit over time, you will most likely need to increase your rent periodically to accommodate for spikes in taxes and insurance premiums. If this isn’t something you feel comfortable doing as a landlord, renting may not be the most profitable avenue for you and it may be more worthwhile to sell.
Keep In Mind: You Don’t Have to Go At It Alone
When weighing out the responsibilities of renting out your home, one thing to keep in mind is that you do not have to go at them alone. In fact, you don’t even have to take them on yourself!
Our team at Coldwell Banker Elite is fully equipped to manage your rental property in your unique economic and legislative environment. Let us take the inconvenience and stress out of managing your property by providing services including rent collection, tenant relations, evictions, bill payments, and property maintenance. Our job is to eliminate your headaches while maximizing the value of your investment. Learn more here and reach out to us today!