Is Renting Smart When the Home Won't Sell?
Daily Real Estate News | January 17, 2007
Homeowners who cannot sell their homes for what they think they're worth might find that renting buys them enough time for the market to rise.
- Do they need the cash? Sellers who can qualify for another mortgage without selling their current property are good candidates to be landlords. Lenders usually count 75 percent of the rent payments as income as long as the homeowner finds a renter who will sign at least a one-year lease.
- Can they rent the property for enough money? Major expense will include the cost of the mortgage, taxes, insurance, and repair bills. The cost of advertising and vetting tenants or of hiring a property manager can add another 10 percent of the rental cost or more.
- Will they still meet tax exclusion requirements? Sellers who lived in a home for two years out of the previous five can exclude $250,000 of profit if they are single or $500,000 if they file jointly. If renting the property will preclude that, it may not be a good deal.
Source: Kiplinger’s Personal Finance Magazine, Patricia Mertz Esswein (02/01/07)
More Practical Tips
With the subprime lending crisis making it harder to get a mortgage, rental demand is increasing.
That has spurred many people to explore the financial benefits of being a landlord.
Some new landlords have entered the business because they couldn't sell their homes and needed to find a tenant, while others are deliberately acquiring properties at below previous market prices.
Here are some important tips for landlords:
Don’t overpay for a property or expect to get back everything you’ve invested. A house will attract only so much rent. If you overpay, you can raise the rent only so much before your property starts sitting vacant.
Hiring a property manager who can help you navigate local ordinances, price properly and find reliable tenants is often worth the 10 to 15 percent of the rent they charge.
Run a credit check on potential renters and insist on references from previous property owners.
Don’t under-budget for repairs. Keeping the property in good condition helps attract quality tenants.
Skimping on insurance can put a property owner in an expensive pickle.
Aim for an annual return of 10 percent to 12 percent. Finding a good accountant who understands the dizzying array of tax breaks, deductions, and write-offs is often critical to achieving this margin.
Source: The Wall Street Journal, Jeff D. Opdyke (03/17/07)
