At some point in your career you may have considered working from home. But have you ever considered making your home work for you? At its very basic, the decision to rent out your home is a business one. It should not be rushed into and it should not be taken lightly. There are a number of factors to consider before making this decision.
First and foremost consider your objectives. What do you wish to accomplish by renting your home? Perhaps you need to relocate temporarily and plan to return. Maybe you’re considering selling and want to wait out a sluggish market so you can maximize your dollars when it rebounds. Keeping a property occupied with the right tenant can be key in strengthening its show-ability as well as its sale-ability, while the wrong tenant can derail the train. Is your home paid off? Or is your mortgage payment low enough that you can make a few extra dollars by renting it out? The extra income can be a great way to fund future endeavors. By keeping an open mind and being honest with yourself you will be better able to move through the stages of the decision making process.
Second, consider the legal issues associated with landlords and tenants. Then, consider how these issues may play themselves out in your relationship with your tenants. Tenants rights and landlord responsibility laws vary by state, so familiarize yourself with the laws in your area. For example, should a tenant fail to pay rent, a landlord may have him evicted- a process that can take up to one month in the state of Texas. Recouping court costs and rental fees associated with eviction may be difficult. Be prepared going in, and you’ll be less likely to find yourself in a legal snafu.
A third factor, and one related to legal issues, is the job of tenant screening. Do not rely on your gut feeling to choose a tenant. It's not only risky, it can be illegal. Have a system in place, utilizing credit, employment and reference checks, and document your efforts. Let the facts decide whether a tenant is a good prospect or not. This due diligence not only provides you with valuable information, it helps build and maintain a professional relationship with potential tenants.
Considered your objectives and familiarized yourself with the law? Your next step is to run the numbers. Do a search of similar rental properties in your area. If the price points mesh with your financial goals, congratulations! You’ve just cleared the first hurdle. But the race isn’t over. Property maintenance costs (perhaps including hiring a property manager if you will be relocating long-distance) will fall into your lap. Other costs to consider include utilities, water and sewer, trash removal and landscape services. Of course, all or some of these expenses may be passed to your tenant, but rest assured they will factor in to the financial equation. From a tax standpoint, you may be able to avoid capital gains tax by renting rather than selling, you will be able to continue writing off your mortgage, property tax payments and maintenance expenses, but you will have to declare additional rental income on a 1099 form. Your accountant (if you have one) should be your go-to person. If you don’t have an accountant, consider adding one to your team.
And finally, think about the energy expenditure required to be a responsible landlord. You, or your designated representative, must be available to handle any situations that may arise. You will continue to be your property’s primary responsible party, without the benefit of being its primary resident.
Once you’ve analyzed your goals, familiarized yourself with the legal lingo, crunched the numbers and made the decision to rent your property, assemble a support team. A licensed agent, attorney, and accountant can streamline the process, making it as smooth and hassle free as possible. By putting sound business practices to use, you will minimize the risks and maximize the benefits associated with becoming a landlord, ensuring a favorable outcome for all.
Check these websites for additional information on rental property in the State of Texas and elsewhere:
Texas Constitution and Statutes, Property Codes can be found on the drop down menu
Includes a section devoted to rental properties
Landlord/tenant responsibility laws by state