7 Considerations When Contemplating Renting Your Home Instead of Selling It

Posted on | July 19, 2009 | Written by: Diane Donnelly

After a failed attempt to sell his home with a local realtor, a seller came to me and asked me to rent his home for him. Understanding my client’s goals and motivation to move as well as their risk tolerance and general understanding of the market are extremely important to me in an effort to help guide the client in a direction that best fits his needs.

The dissatisfaction with the realtor has left this seller frustrated, sad, emotional, disappointed and weary of the market and Realtors as a whole.

After discussing his original reason for reaching out to me, I asked him about his understanding of the rental market. Much to his surprise, there is much more to consider when making the decision to rent out a home.

Here are a few additional considerations:

Vacancy factor - There may be some time when there is no one occupying the home and the owner must make the payment out of his own pocket. Will you be able to carry this mortgage and the mortgage or rent on your current home? What if it is for 2 months? 3 months? Factor this in.
Maintenance factor - Things will go wrong in the house. What if the refrigerator fails? What if the roof springs a leak? What if the AC fails? Be prepared.
Management Fees - Are you going to manage the property yourself or hire a property manager to handle it? If you decide to save the money and do it yourself, how are you going to determine the credit worthiness of the potential tenant? What if he doesn’t pay the rent on time? What if you get a call for a maintainance item at 3 am? If you decide to hire a management company to avoid the potential headaches of managing your own rental, count on paying the property manager 8-15% of the monthly rental. (The 15% charges are typically for resort areas - beaches, etc).
Insurance - You will need landlord coverage.
Legal Fees - in the event you need it.
Consider a loss of equity if the market depreciates.
Will you qualify to rent or buy your next home? The guidelines have changed and it is more difficult to carry the second debt.

These are some of the factors that need to be considered before jumping into a rental situation. I am not against rentals, in fact I own a few myself. I had some bumps and bruises while I was learning it and I am here to help spare you the same challenges I ran into.

There are a lot of benefits to owning a rental property. There are significant tax write off’s, depreciation, increased equity in a growing market, etc.

Know what the pros and cons are before making your decision and be sure to hire an agent that will represent your best interests.

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