You’ve decided to move to a larger home. What should you do with your current home? Should you sell the home, or should you try to rent the home? A recent study concluded that 39% of buyers prefered to rent out their last residence rather than sell it when purchasing their next home. The study cites that many homeowners were able to refinance and “locked in a very low mortgage rate in recent years. That low rate, combined with a strong rental market, means they can charge more in rent than they pay in mortgage each month, so they are going for it.”
This logic makes sense in some cases. We at Dave Financial believe strongly that residential real estate is a great investment right now. However, if you have no desire to actually become an educated investor in this sector, you may be headed for trouble. Evaluating whether a property is a good investment and worth renting is both a monetary and personal decision. Before choosing to rent, you should carefully consider your personal your situation and tolerance for risk. Figuring your costs is the easy part. The hard part is the unknown: Who is the person or people who will occupy your home, will they take care of the home, and will they actually pay the rent?
Before renting your home, you should answer the following questions to make sure this is the right course of action for you and your family.
1.) What criteria will you use to select your potential renter? How will you respond if your tenant says they can’t afford to pay the rent this month because of more pressing obligations?
2.) Have you interviewed a few experienced eviction attorneys in case a challenge does arise?
3.) Have you talked to your insurance company about a possible increase in premiums as liability is greater in a non-owner occupied home?
4.) Will you allow pets? Cats? Dogs? How big a dog?
5.) How will you actually collect the rent? By mail? In person?
6.) Repairs are part of being a landlord. Do you have a budget set aside for repairs? Who will take tenant calls when necessary repairs arise?
7.) Do you have a list of craftspeople readily available to handle repairs?
8.) How often will you do a physical inspection of the property?
Renting out residential real estate historically is a great investment. Many people have become wealthy via investment properties. However, owning an investment home is not without its challenges. Make sure that you carefully consider the pros and the cons of owning investment properties before making your decision. If we can help you in any way, let us know.
The Team at Dave Financial