6 Considerations Before Turning Your Home into a Rental
March 9, 2017 | REMAXJA Admin
Sometimes moving out doesn’t necessarily mean moving on. If you need to relocate but aren’t ready to sell your home, you may be thinking about renting out your home.
Beyond considering how much equity you have in your home, the market forecast for real estate in your neighborhood, your savings and other financial factors, here are some things to ponder if you’re thinking about becoming a landlord.
1. Make sure you can legally rent your home
Check your mortgage to see whether there are restrictions on renting. If you have an FHA-backed mortgage, for instance, you won't be able to turn your property into a rental. The federal loan program is meant for borrowers who are buying a home to live in it. The only way around FHA restrictions on rentals is to refinance and convert to a traditional mortgage. This requires having a certain amount of equity in your home – sometimes 20 percent or more. Also, check with your HOA or review your neighborhood covenants to see if there are any restrictions on rentals there. Some do not allow rentals, others have restrictions on the length of rental agreement, and others charge additional fees if you rent out your home.
2. Check into the local rental market
Contact a trusted real estate agent and a professional property manager to get a feel for the current rental market in your neighborhood. Ask them about the demand for rentals and any local market conditions that may affect future demand for rental units. While you have them on the phone, be sure to also ask about the local real estate market. The information can help you compare the benefits of renting out your property vs. selling it.
3. Talk to your tax accountant
Depending on where you live and your financial situation, renting out your home can impact your taxes, especially if you're planning on selling it in the future. For example, you may be required to pay capital gains taxes on the proceeds from the eventual sale if you don't live in the home for at least two of five years prior to selling it. Of course, this is just one possible scenario. Let a professional tax accountant walk you through your specific tax situation.
4. Look into the law
Becoming a landlord is about more than collecting rent. You're still responsible for repairs and maintenance, and you'll be required to continue carrying homeowner's insurance on the property. It may even be advisable to increase your liability coverage. Another thing to keep in mind is that although you'll still own the home, you don't have the right to come and go as you please. Check the laws in your area regarding how much notice you must provide before stopping by. Each state has a different set of laws governing landlord-tenant relationships.
5. Consider a property management company
Will you be living far from your rental unit? Traveling often? Or, are you a complete pushover when it comes to things like collecting late fees? If so, think about using a property management company to handle your rental. For about 10 percent of the monthly rent, a property management company will handle tasks like screening potential tenants, collecting rent, evicting tenants and arranging repairs (you’ll still have to pay for repairs in addition to the monthly management fee).
6. Your new housing needs
Whether you ultimately decide to rent your current home or sell it, you're moving on and need to find your next place. Be sure to connect with a real estate agent early in the process who can help you find your next home in the area where you're headed.
Not sure if renting or selling is best for you? Find a local RE/MAX agent who can help you weigh your options.