Renting your home can be tempting if you haven’t been able to sell it. From a homeowner’s perspective, as long as rent covers your mortgage, taxes, and insurance, it’s got to be a viable option, right?
Before making any major decisions we want to share with you some of the costs associated with renting out your home that you may have not known or considered.
If you want to attract the best tenants to take the best care of your home, it has to also show the best. To attract higher quality tenants, landlords will likely have to spend $1000 or more on minor upgrades such as paint, flooring etc. On top of that you will have ongoing maintenance costs that come up. Whether it’s fixing a leaky faucet, regular furnace & duct cleaning, gutter cleaning, or fixing the dishwasher, there are costs that will inevitably come up.
Just over a year ago, vacancy rates were at an all time low. With the changing market, this is not the case anymore. More and more we’re seeing rental ads that state, “first month FREE” or “only $500 DD required” with a 1-year lease. With increased competition, landlords are offering incentives to avoid vacancy costs. A single month can pass so quickly, and your PITI (principle, interest, tax and insurance) payments of $1500+ are now out of pocket or sitting on a line of credit.
Although it’s not disposable income, any principal that gets paid down on your mortgage is considered taxable income. Depending on your interest rate and mortgage balance, this could equal an additional 6-10K of taxable income. If you typically get money back at tax time, don’t be surprised if you now end up owing money. For more information, be sure to speak with your accountant.
Our sincerest hope is that nobody gets caught with a poor tenant, however there is no guarantee you’ll avoid one. “Professional tenants” know how to make it look like you just landed the best tenant ever, when they actually have a different plan in mind. Once they move in, they have no intention of paying rent, they purposely damage your home, and then leave a huge mess behind. If you’ve ever known anyone to experience this, it’s absolutely horrifying. The costs associated with such a tenant can a minimum of $5,000 and well over $10,000. On top of that you can endure legal fees trying to recoup damages, but if they don’t have anything to give, you have no hope of getting it back.
It’s impossible to know if you’ll have a cooperative tenant once you’re ready to sell. It is rare that a tenant will ensure your property is in the cleanest, most showable condition to sell. Some will purposely work against you by leaving the property messy, as they don’t want to move. You risk losing thousands of dollars because your home is in less than excellent condition. Alternatively you could wait until your tenant moves out, get it all cleaned up and ready to sell, which again you’ll endure more upgrade costs, in addition to vacancy costs while it’s on the market.
We don’t know exactly how long it’ll take for our market to respond at an increasing rate again. Although the value may not be what you hoped to get today, it may be as good as it gets for the next couple of years. Knowing that, it’s likely a better option to accept a little less now, than rent it out and accept even less later, along with a lot more work.
Jason Rustand with RE/MAX Real Estate serves with the highest level of integrity and excellence every time. For more info on this topic or others related to real estate, LIKE our Jason Rustand Team Facebook page, call us direct at 780-980-2828, email email@example.com or visit WeSellLeduc.com