Schools out! And as summer approaches you may be considering renting your home out for the summer.
There are many benefits to renting your home, along with lots of risks.
Renting while trying to sell, is unpredictable in some cases, but very profitable when done correctly. It can even leave you with much more money that you would ever have dreamed of by simply selling.
Now, that doesn’t mean that renting is fit for everyone. There are many factors that go into renting your home, especially for those with a house on the market. Be sure to fully understand what you’re getting yourself into before you dive into the world of renting and real estate.
So how do you know if you’re capable of becoming a landlord? Should you stick with selling your home, and avoid all the chaos that comes with renting? Or are you dedicated to investing in the rental process?
The very first thing you want to look into when deciding whether or not to rent your home is the profitability level. Determine how much you plan on charging for rent, and then deduct all of your real estate expenses, including
Will your property produce cash flow? Even after all of the expenses associated with the home and property have been deducted? Cash flow refers to the money left over after all of your expenses have been paid.
When determining cash flow, remember to include hidden fees that could be applied to your property and home in the future. Will you need pool cleaning services? Or lawn care during the fall? Call local businesses and get quotes for such expenses. Incorporate any and all fees that could be applied to your property, and determine if these costs could be covered by rental income.
Now that you know how much you will profit off of a rental property, consider how much money you would make if you were to sell your home today.
Right off the top, assume you will lose around 10% to closing costs, agents fees, and normal sales expenses like property taxes and transfer taxes. If you are apart of a homeowners association, you may have to incorporate additional costs. Does that leave you with any profit?
Compare the ROI of your home, with your cash flow. Is your home appreciating? If the value of your home is depreciating, you’ll want to sell sooner rather than later.
Identify which direction the local real estate market is going. If you are a resident of “St. B” analyze the Saint Bethlehem, TN real estate market and determine exactly when you want to sell. This will help you decide if you have the time it takes to dive into the rental side of real estate.
If you have any questions about the local market or would like a deeper look into
If you are fortunate enough to have steady cash flow from rental revenue, don’t forget about the tax increases you will face! As with any other income-producing asset, you will be taxed on the income you receive from your rental.
With that in mind, remember that you can write off a lot of the costs associated with converting and maintaining the property. Be sure to hold onto any receipts you accumulate for purchases and repairs surrounding the rental and maintain a good record of any rental transactions. This will be helpful when it comes time to do your taxes.
In addition to the credit you can accumulate during the rental process, certain properties may qualify for additional tax deductions. For example, you may be able to claim a deduction for depreciation of the property. Talk to a tax professional about what tax increases you will face, and what options you have to help alleviate some of those costs.
Last but not least, ask yourself, do you really want to be a landlord? Do you want to take on the risks?
Rental ownership often means you have to trust your home to someone you barely know. You may get lucky and end up with tenants who are lifelong friends, that are dedicated to paying rent on time and maintaining the place as you would. But in this day in age, it is more than likely that you will have to trust your home to strangers, who may end up doing some damage on the home.
Not to mention, there is a lot of responsibility involved in owning a rental, and it takes a lot of attention, time, and money. You may be considering a third party rental management company relieve a lot of that responsibility, but they generally cost around 10% of your rental income.
Since you are selling your home, you will have to be very clear with your tenants about the length of the lease and the details surrounding.
Make sure to clarify exactly what would happen if your property were to sell. If you plan on showing your home while they are living there, make sure your tenant fully understands the arrangement.
Incorporate all of the details and responsibilities of both parties into a legally binding lease. This contract will act as a safety blanket for you if you run into any problems down the line.