Should You Sell Your Home or Turn it Into an Rental Property?
If you're considering up-sizing or downsizing from your current home, there's a common question that most people face - Should I sell or should I turn the home into a rental property? Since the economic downturn, the demand for rental properties has been at an all-time high which might make you think that your decision is a no-brainer. But before you get ready to look for renters, make sure you know what you're getting into.
Is this kind of home/location in demand?
This is an important question to consider first because if there aren't many people looking to rent your kind of house, there's no point in going any further. We recommend that you look at other rental listings. If you're home could fit in and be competitive - great! It should be easier to keep the home rented over the long haul.
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Can the rent cover the mortgage payment?
While you're checking to see if there is a demand for your particular kind of home, pay attention to the monthly rent fees that others are charging. This will help you determine how much you can charge. Then compare that number with your current mortgage payment. If you can rent the property for the same or more than the mortgage payment, you'll be in good shape although, don't forget to consider maintenance and repair costs (see next question).
Does the home/property need repairs?
Those loose deck boards that everyone knows not to step on...they'll need to be fixed prior to rental. That leaky faucet...that hole in the closet ceiling...that stain in the back bedroom...yep, all of those things will need to be repaired before you rent the home out. If your home is in need of serious repairs, its likely you will need to repair them whether you decide to sell or rent the property. However, if you want to fix up the home cosmetically to entice renters, you will need to factor this cost in.
How are you planning to manage the property?
Are you going to be the kind of landlord that makes repairs yourself or will you hire a property management company to take care of any issues, repairs and tenant needs? If you will be living nearby, it's possible you can manage things on your own but you might find that having a property management company will take away a lot of stress. Again you should factor in how much it will cost (in time and money) to manage a rental property.
Do you have enough support funds to handle 3-4 months with no renter?
On average, you should expect there to be a period of time between renters in which you will need to cover the full mortgage payment. It's a good idea to have a reserve fund set up to cover this situation as well as other unforeseen repairs and maintenance.
Since we are strong advocates of paying off your home faster with a SmartREFi, we must point out that having a rental property can also be a profitable investment. If you are close to paying off the home, you won't have to stress about covering your monthly mortgage payment and you could see consistent profit in your rental property. As always, we recommend that you make sure you are legally protected with a comprehensive rental agreement and require renters insurance from your tenants. If you are unsure about your rights and requirements, please speak with an attorney who specializes in real estate properties. There are some tax benefits to owning a rental property so be sure to speak with a tax professional as well.
If you have a mortgage AND a car loan, student loan or credit card debt - you can reduce your monthly costs with a SmartREFi™.
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