If you are like most homeowners, you would probably enjoy cheaper mortgage payments, which would free up money for use elsewhere. Or, you may even wish to move into a new home, but you'd have to sell your current one first. Dealing with a lengthy mortgage obligation and the stress of finding a new property could be too much to bare.
That's why it could be advantageous to actually rent out your home. With renting, not only will you be generating extra income, but you can use this money to pay down your current mortgage faster while also financing your new relocation. However, it's important to note that there are a series of additional undertakings required when you rent out your home. It's important to keep in mind that owning two properties could be a heavy load and dealing with tenants may be more than you bargained for.
Here are a few things to consider:
Are you up to code?
Renting out your home isn't as easy as signing an agreement and allowing strangers to move in. Some states and municipalities have differing laws regarding the relationship between landlord and tenant and if you aren't aware of your new obligations, then your new arrangement could be void.
You'll also want to speak with all zoning and housing authorities in your area to make sure the transition goes smoothly and no last minute details get in the way of the move.
Are you prepared to be a landlord?
If you move far away, then you'll likely need to work out some kind of deal with a property manager or handyman who can address all concerns with the home now that it's being rented. If a pipe bursts, will you be able to honor your commitment to have the issue fixed in a timely manner? If a crime happens near the home, will you be able to ensure the property is secure and fit for tenants?
These questions should be taken note of before you move forward with your plan to rent out your home. In addition, while you may not need to be hands-on with every occurrence in the home, you should be ready to have a consistent relationship with the new tenants.
What will you charge?
Homeowners sometimes choose to rent rather than sell because they can't get the sale price they were asking for on the market. However, pricing your home for rent is a different subject, and knowing how to fairly gauge your home's value is key.
You'll obviously want to make sure you are making a steady profit each month once you've paid for the mortgage and any utilities. Further, if the condition of the home is not in comparable shape to others in the area, you could be forced to charge a lower rent price. To combat this, simple remodeling or a few renovations to the kitchen or bathroom can go a long way to enhancing the property's worth.
Speak with real estate agents, lawyers and other landlords in the area to get a better idea of how much you should charge.
The lease agreement should be a binding contract that can hold up in court and reaffirm your right to collect rent each month. But you'll want to be sure to specifically outline everything that is included in the rent down to the most minute detail to avoid ambiguity or future legal problems.
For instance, AC, heating, electricity, trash removal, water, gas and maintenance are just a few of the things that should be considered. If these items are included in the rent, then you can expect to charge more. However, tenants need to be aware of what their obligations are to you as a landlord as well.
Are tenants required to mow the lawn and keep up outside appearances? What if the home needs a new coat of paint? If the plumbing system isn't working, who is there to call?
Keep these factors in mind and try to accurately price your home as such.
What about unruly tenants?
Handling issues with tenants isn't the same as disciplining your children. Sometimes tenants may break their lease or fall behind on rent payments. Though it's important to have a positive relationship with tenants, the line must be drawn somewhere. Are you prepared to take a tenant to court for not following the rental agreement?
Also, if tenants are leaving holes in the walls or not maintaining the condition of the home, your home is losing value. This makes it harder to find future tenants at a price you'd like to charge without having to fork over money to make repairs. This is why it's necessary to meet with prospective tenants on several occasions and conduct thorough background checks before completing the deal.
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