Think You’re Ready to Become a Landlord? 6 Questions to Ask Yourself Before Making the Decision
This content is sponsored by our friends at MilitaryByOwner Right now, you’re probably neck deep in holiday activities...
This content is sponsored by our friends at MilitaryByOwner
Right now, you’re probably neck deep in holiday activities and events. And if your military family is due to move during the next PCS moving cycle, I hate to be the one to remind you that after the New Year, moving season is right around the corner!
If you’re a homeowner, you’re likely also facing the question, Should I sell or rent out my home?
Though it may seem like a no-brainer to unload your property if the housing market in your area is strong, you may choose to become a landlord for varying reasons: you’d like to build up more equity in your home before you eventually sell, you’re viewing the house as an investment property, or you intend to return to the area and live in your home again.
While it may sound like a relatively simple thing to find tenants and begin cashing rent checks, there’s so much more to landlord responsibilities. So before you launch into the world of becoming a landlord, ask yourself a few important questions.
Can You View the House As “The Property” Instead of Your Home?
If you brought home your first baby or created memories as a family for several years in this house, it could be difficult to view it as the property instead of your home, but it’s crucial for you to make this shift in your mindset to handle the renting process as professionally as possible.
The hope is that your tenants will also lovingly care for the beautiful shrubs and lawn you tended while you lived there, the reality is that no one else will care for your home like you do as the homeowner. Maintaining an objective attitude about the property will go a long way towards alleviating any future disappointment. Have a minimum standard of expectations for potential tenants, of course, but also realize they will not have the same feelings toward the house that you do.
Are You Prepared For the Unexpected Expenses That Will Inevitably Crop Up?
Especially if you’ve purchased a newer home, you may not realize yet the expenses that you’ll need to cover. When you get a call from a tenant in August that the A/C is out, the fix can’t wait until a more convenient time for your budget. Are you prepared financially for repairs or replacement of major items like the HVAC, roof, or plumbing? Even simple maintenance tasks will be an expense you should plan for.
Also consider the prep and repair needed between tenants. Can you foot the bill for repainting, cleaning, or replacing worn out flooring, carpet, and even appliances? A financial cushion and projected budget will be important as a landlord.
On this note, keep a log of income/expenses to make tax time easier, as you are entitled to deductions when you have a rental property. See MilitaryByOwner’s post, Create a Foolproof System for Keeping Track of Rental Property Expenses, for more information on this topic.
Do You Understand How to Screen Possible Tenants?
Whether or not you’re intending to use a property manager, have a screening process in place or understand what your PM uses to screen renters. Start with SmartMove for extensive background checks and full credit reports on prospective tenants. You can even require letters of referral from past landlords or employers.
Do You Have a Plan in Place as a Long-Distance Landlord?
Though you may feel confident that you can manage your property from a distance, envision handling repair requests at all hours (especially if you’re in a different time zone), being responsible to contact service providers, or even planning and performing routine maintenance.
This reality check is the point where many military landlords choose to use a property manager. Hiring a property manager will ideally save you both time and money, but you’ll still need to be proactive. This includes periodically setting eyes on the property yourself or through a trusted agent, staying up to date on tenants and lease terms, and going over any changes with the property management contract. Expect to pay at least 10% of your rental revenue to a property manager.
Do You Understand Both Your and Your Tenant’s Property Insurance Obligations?
As the homeowner, it is not advisable to simply keep your old homeowners insurance policy. Contact your insurance carrier for specifics on converting your homeowners insurance to landlord or rental property insurance. Making this change will help ensure that your property is covered in the case of a damaging event such as flood, fire, or hurricane, as well as possible coverage in the event a landlord/tenant dispute arises.
It’s important to note that your landlord insurance does not cover the tenant’s belongings or liability–they will need their own renters insurance. You can require that your tenants provide proof of renters insurance, even writing this into the lease.
What is Your End Game?
Returning to the question of why you’re choosing to rent vs. sell, keep your end goal in sight! If it’s to build up equity and sell the home in a few years, make a point of following local housing market trends. Since there are rules and exemptions for military members living away from their home when it comes time to sell, contact a Realtor or CPA for more details before you list the home.
Whether you decide to sell or rent your home during your next military move, keep MilitaryByOwner in mind as a resource. As a retired Marine Corps family with a staff composed mainly of other military family members, they understand first hand the ins and outs of listing your home when you PCS!
Jen McDonald, is the Content Editor at MilitaryByOwner. MilitaryByOwner is a sponsor of the 2018 MilSpouseFest event series. You can find more information about buying, renting and selling a home at MilitaryByOwner.