Home values are stagnant and prospective homebuyers continue being cautious. A large number of homeowners, reluctant or unable to sell their home, are now looking at another viable option, renting their home out. Others are becoming landlords out of necessity because of job transfers that require them to move. Using Davis, California homes for sale, we have a vacancy rate between 3% to 4%. This is fairly high compared to vacancy rates in the past. Is becoming a landlord a consideration for you?
Crunch Those Numbers: What are your mortgage payments compared to what your home may rent for. Would you come out ahead or at least break even. Will you have to make concessions with the prospective tenants that could be an added expense ( water or city services) or a detriment to the future home value ( allowing pets). Ideally, the rents should be at least 125% of the monthly mortgage payment to make financial sense.
Price It To Rent: Some communities might be in a rent control area that will limit your potential rents. Another concern will be the timing issue of when you’re attempting to rent the home. Just as you would look at comparable sales to determine home value, take a look at what properties are renting for in your immediate neighborhood. And don’t get greedy! Overpricing will result in your home sitting vacant. Vacancy is costly.
Find The Best Tenant: Finding a reliable tenant can be challenging in today’s economical downturn. Many potential tenants lost their home to foreclosure or short sale and have blemished credit. You want someone who is gainfully employed and have been at their present job for a few years. Have they been evicted or broken a lease in the past? Never mind your gut instinct, treat the entire process like a job interview.
The Tax Ramifications: Rental income is taxable and there are a number of deductions on expenses and depreciation. If you rent your home out, limit it to one or two years, should you rent for three years or more and then sell, you forfeit a valuable tax break ( $500,000 in capital gains tax-free for married couples and $250,000 tax-free for singles). The law is very specific, you must have lived in your home as your primary residence for at least two of the last five years.
Landlord Responsibilities: For your protection, you need a landlord’s policy.This insurance will cover the house and might reimburse you for lost rental income due to damage. Your also protected if the tenant is injured in the house. Becoming a landlord takes patience, time, the inclination and the correct temperament. This means illogical complaints at 2am on a work week, maintenance and possibly legal issues. If this seems overwhelming, you can hire a property management company that can take care of most responsibilities but will charge 10% of the monthly rents. Please visit my website at www.JohnnyBrooksHomes.com for helpful tips on selling or buying a home and easy access to view all local area homes for sale