The truth about renting property

RentLOCAL Hopkins County, KY:  It doesn't take much to turn an ordinary homeowner into a landlord. Maybe you have to move but want to keep your home and rent it out. Or you have a change of fortune -- you get married, receive an inheritance or buy a new house before you unload the old one.  While many people would love to have an extra house to worry about, owning even one rental property can be a headache. You have to tease the problem apart and ask yourself, among other things:

 

  • Is it worth hanging onto this property?
  • How will you feel about strangers moving into your beloved home?
  • Can you, a novice with a day job, turn a dime on a real-estate rental while avoiding the Tenants from Hell?

The answer to these questions depends partly on the place itself. Ideally, it's in good repair, in a safe part of town and the mortgage is cheap or paid off. The more your place departs from this ideal, the more closely you should look at selling if you can. That's because, whatever your reason for holding and renting out a spare house -- and there are many -- it won't work if you don't treat it like a business.

Can you do it? Should you?
The biggest criterion for whether you should even attempt this may be whether your temperament is suited to being a landlord. 

In addition to your obligation to yourself to keep the business afloat, your landlord responsibilities include:

  • Providing a safe, smoothly functioning home for your tenants. (ensuring the plumbing, wiring and appliances function, outdoor areas and stairways are safe, AND quickly response to any tenant's report of a problem.
  • Advertising the rental, selecting tenants and evicting them if need be-- all of which are governed by law.

If the answer is a resounding NO then you have two options.  One pay a professional property-management service or opt out by selling the property.  If you consider renting a property then consider the following:

  • What is the true cost?  This includes mortgage payments, maintenance, insurance, property taxes, the additional tax work, and any time the property stands empty.   Be prepared for some wear and tear from your renters when they move out and the work to ensure the property is clean and presentable for the next renter.  You want to simplify the process where possible.
  • What can you charge for rent?    Check newspaper ads, call property management agencies, look at online classified ads and asses the demand in your area for rental property.  Drive by a few of those available for rental in your area to see what the competition has and how your property compares.  
  • Costs vs. Income:  Always figure one month of the property being vacant annually to be sure your other financial obligations do not suffer, look at the tax-sheltered depreciation; the chance of a profit if property values appreciate; do you ever see yourself moving back into the property.  Then make the decision.

Home Maintenance and Screening Renters
If you're going to manage your rental property, always consider your application and screening process to find the best possible tenant you can.  

Screening: Use our RentLOCAL Renter review to ensure your potential tenant is not among those who have been bad tenants in the past, search the Sex Offender List and the local jail site to see if there are any other outstanding issues you need to be aware of; and always ask for and call their referrals.   Drive by the last property they lived at if possible as have a detailed contract. 

15 Common Renter's Rights

The law: Among the legal considerations:

  • The law requires you treat everyone equally, so set your criteria for accepting or rejecting applicants and apply them uniformly. Write down your policy. What problems will count against a prospective tenant in your mind? What things can you overlook? How will you consider tenants with a history of debt? Stick to your rules without exceptions.
  • If you do reject someone  -- disclose what the problem was and how you learned of it.
  • Keep applications for several years so you can demonstrate, if necessary, that you have a policy for screening applicants and that you apply it fairly. When you discard old applications, shred them -- especially those with Social Security numbers and other personal information.

Maintenance: As for property maintenance, if you are handy, go for it. Just remember that there will come a time when you'll hit a problem you can't solve. You'll also likely want to take a vacation at some point and will need emergency resources your tenants can contact. Today, before you need it, establish a relationship with a plumber, an electrician and a carpenter whom you can trust.

If you raise your rents consider using three months' worth of the increase and put it into the property.  The No. 1 complaint tenants have is that when the rent is increased, there is nothing put back into the property. 

Handling Your Rental Income Properly
No matter who manages your property, you'll need to keep rental-business records separate from your personal accounts. That's easiest with a financial software program like Quick Books.   You want to see at a glance where the business stands financially and substantiate tax deductions in case of an audit.

What Can You Deduct?   Rental property deduction examples include mortgage interest, property taxes and expenses related to the operation and rental of your unit, such as professional services (cleaning, painting, accounting, property management, yard care), supplies (paint, equipment, lumber, appliances) and travel in the service of caring for the property.  Always talk with your tax consultant to see what is available on your specific rental property.

Other tips:

  • Create a dedicated savings and checking accounts for your rental business. If you own the property through an LLC, a separate account may be mandatory.
  • If you're renting out what's been your primary residence, stop all automatic bill paying and be sure to file a change of address with the US Post Office so that your bills or other financial papers are not sent to that address.
  • Put monthly contributions into an account for repairs, new appliances, maintenance and taxes. Even if you do not need repairs currently, when they are mandatory it is much easier to have those funds available.
  • Never mingle rental income with your personal funds. 

When Things Go Wrong?  Things will go wrong and if you should have to evict a tenant from your rental property use an attorney who specializes in rental law.   Consult the attorney if a tenant gets even one month late on rent and follow the guidance you're given.   You should have an eviction in process at this point, and you can explain that this is not personal, that you'd like to keep them as a tenant and all they need do is pay up.

If landlord duties are keeping you awake at night, if a bad tenant is taking the fun away, if you must dig deeper and deeper into your savings to support it -- that's the time to sell if you can. Rental property is a business, and if it's not a business you like, let it go and stick to work you enjoy.

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