Wednesday, May 5, 2010

Is renting your home a good idea?

Many people have turned their homes into rentals. You may have to move for various reasons and selling your home may not be your best option. I put together a few tips to help you determine if renting your home is the best decision.

First, you need to know how much it will cost to keep your house functioning. These are cost such as mortgage payments, taxes, insurance, HOA dues (homeowner dues), and maintenance cost. Some expenses may include property management fees or legal counsel. Come up with a total.

Second, come up with an adequate amount for rent. Find a way to compare other rentals in your neighborhood that are similar to yours. Use resources such as the local paper or property management company. Another good place to search is Craigslist.

Finally, compare rent vs. cost. It’s a good idea to create two Profit & Loss (P&L) statements. Create one with the best case scenario; this is if you lived in a perfect world, high rent with little maintenance and few expenses. Create the second P&L statement as if it were the worst case scenario; this is if you had the tenants from hell. Your maintenance cost would be high, and rent low. Now analyze each statement and decide if renting your home is a good financial decision. Renting your home may create extra cash flow for some, and a loss for others. Keep in mind; this could be a long term investment. There may be good reason to hang on to your rental even if it doesn’t have an immediate profit such as, it’s a tax sheltered depreciation, the prospect of a worse loss incurred by selling immediately or the chance it will appreciate in the near future.

All things considered, making this decision may not be an easy one. Stayed turned for my next blog, on understanding what it takes to be a landlord.


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