Is it profitable?
The reasons people consider renting their home vary from job relocation to the dream of becoming a landlord, but one thing is for sure: you don’t want your rental home to be a money pit. Here are some of the major costs to consider when determining if your home can turn a profit:
- Mortgage: Of all the potential costs of owning a rental property, your mortgage should be the easiest to predict. Be sure to calculate both the principal and the interest.
- Insurance: Be aware that insurance increases almost every year. As a result, you may want to include a cushion when you rent out your property so that you don’t lose tenants to a rise in rent.
- Repairs: Every homeowner knows that repairs are inevitable, but they may become all the more frequent when tenants are not responsible for them.
- Taxes: Property taxes aren’t the only tax you’re responsible for when you own a rental property. Any income you get from rent payments is subject to ordinary income tax (minus the cost of rental expenses).
- Vacancies: While renting your home may feel like a sure source of income, don’t expect to always have full occupancy. Whether it’s a gap between renters, tenants breaking their lease, or eviction, there are going to be times where you will be shelling out more than you’re taking in.
- Agent & management fees: Hiring a property manager or real estate agent to rent your property comes with its own set of costs from management fees to real estate agent commissions.
- Advertising: If you choose to rent your property yourself rather than go through an agent or property management company, factor in the cost of advertising your home to prospective tenants.
- Miscellaneous: Other smaller expenses such as credit checks or HOA fees will likely crop up throughout your renting experience.
Are you ready to be a landlord?
Being a landlord can be a full-time, on-site job. Whether it’s making repairs, collecting rent, or letting in that one tenant who is always losing their key, you’re expected to be available every day of the week. And while you may be lucky enough to have tenants who pay their rent on time and maintain the property themselves, you have to be prepared to host some less-than-desirable renters.
If you are concerned that being a landlord may not be right for you, you can always
hire a property manager. While hiring a property manager is an expense,
finding a reliable management company can transform your role from landlord to rental property owner. You can collect the profits without the stress of managing the property.
Do you plan to sell your home eventually?
If renting your home is a life-long dream and endeavor, then you’re likely to make the right choice in becoming a landlord. However, there are many others who choose to rent their home temporarily because they are relocating or are hoping that the real estate market will improve before they sell. Those in the latter camp are often looking to find ways to improve their current assets, but it’s important that you
understand the market before you decide to rent your property temporarily.