There may be lots of reasons to not sell a home you own and rent it out. Maybe you’re moving to another location, buying upwards to a higher priced house, or even downgrading. Before you do you probably should look at the fundamental facts of renting, especially if you have never been a landlord before.
Here are some things to consider when trying to decide whether you should sell or rent your house to tenants
Tax issues or benefits
It’s best to talk to your accountant to determine your tax liability and possible capital gains tax. There are deduction advantages available for depreciation and expenses.
Rent Liability
With all the unemployment and foreclosures there are lots of people who can’t afford to pay their mortgage. You may find the perfect tenant who may be able to pay rent today but what happens if they fail to pay in the months to come? It’s a good idea to have a reserve of cash available to cover those months when the tenants fail to pay rent. This could get quiet lengthy especially during the eviction process.
Repairs and Upkeep
Depending on the condition of the property you’ll need to set aside a percentage of the rent to cover repairs. Tenants don’t typically keep the residence in as good condition as owners so when they move out there will be repairs and maintenance. Who will do those repairs? Contractors can be expensive and difficult to work with if you are inexperienced.
Legal Expenses
Contracts, evictions, or possible law suits are all costly and time consuming.
Insurance
You’ll need special insurance to cover liability when you rent your home.
Management
Collecting rent, performing maintenance, inspections, after hours emergency contact. Advertising, All are necessary when you are a landlord responsible for tenants.
Can’t Sell due to the Market
Hopefully you’re not forced into being a landlord against your will but it’s pretty common these days. Rather than sell at a loss you can rent the house and wait for the market to rebound.
Here’s a simple calculation tool that can provide a basis for figuring out the Capitalization Rate: Rent vs Sell Your House for your property.
These are just a few things to consider when weighing the benefits of becoming a landlord. If you do your due diligence and weigh all the factors, you can find it financially rewarding.
