So, it is fall and you have had your home on the market all summer. You are left wondering, do I continue to try to sell or should I just rent out the home. When a home does not sell as quickly as expected, it is tempting to think, I could just rent it. That idea is becoming more common among sellers that have a low interest rate mortgage on a home that they are trying to sell. The numbers may work for them to rent out the property. They could perhaps even have a positive cash flow if they do. But there is more to look at than just a positive cash flow.
Look at the whole picture
Before you decide that renting is the way to go, you should look at the whole picture. There are some important questions to ask before you decide to become a landlord.
Are you ready to be a landlord?
- Are you ready to become a landlord? Collecting rental income and building wealth with someone else paying the mortgage is appealing. But what about the 2:00 am call that there is a problem with the water heater? There is also the issue of finding tenants and collecting the rent. Even if you decide to use a property management company, this does not mean that you can have a completely hands off experience.
- Does the property work as a rental? Not every home is cut out to be a rental. Location, condition and maintenance costs all matter. As the owner of the home, you know it better than anyone. Do you have looming repairs? Can you manage those repairs from far away or trust that a property management company will handle them the way that you want? Is the property too large to be a rental or in a location that no one would want to drive to? All of these should be considered before you turn a home into a rental.
- Do the numbers add up when looking at all of the costs involved in holding on to the property? Look seriously at all of the costs. There will be the house payment, maintenance costs, advertising and management of the property. There is also the possibility of vacancy and no rent being collected. When all of this is taken into account, do you have a positive cash flow on the property? If the answer is no, can you budget to comfortably add the difference each month? There is also the consideration of insurance costs. Insurance will be more expensive on a rental than an owner occupied property. You should also look at tax ramifications.
Re-evaluate your strategy
If you are considering renting out a property because it has not sold, it may be time to reevaluate your selling strategy. Sometimes all it takes is a price adjustment or some fresh photos or a change in marketing. Renting out a property can be a smart, long-term strategy, but it is not the best fall back position that it may seem. If you are not sure what to do, discuss with your real estate agent and make a plan to reach your goals.