Let's say that, like countless other homeowners out there, you've been trying to sell your home for months — to no avail. This scenario is stressful under any circumstances, but anxiety levels can ratchet up substantially if you have to relocate quickly or if you simply cannot afford to sell your home at a rock-bottom price in a down market. To stem the bleeding and buy yourself some time, why not consider renting out your home? Being a landlord isn't for everybody, but the following tips can help you determine whether it makes sense for you.
1 Do the math. Add up all the costs that will continue to be yours if you hang onto your home: your mortgage payment, utilities, insurance, property taxes, maintenance, repairs, landscaping and occasional travel expenses if you won't be living near the home. Even if the rent you would receive wouldn't cover all those expenses, you may want to rent it out anyway so you have at least that much help with the bills.
2 Don't ask for too much per month. As tempting as it might be with all those bills hanging over your head, resist the urge to ask a pretty penny for rent. Then your home will simply languish on the rental market. Check the classified ads in the newspaper and online to arrive at a fair price, and then advertise your home in multiple places.
3 Try to lure potential buyers. As you interview rental candidates, give top priority to lease-option or lease-purchase tenants. Bankrate.com explains how these arrangements work: "In a lease option, a renter pays more than the established monthly rent for the right, but not the obligation, to buy the property later. A lease-purchase pact is similar, but it obligates the renter to buy."
4 Don't rent to just anybody. Be sure to check potential tenants' credit histories, criminal histories and employment backgrounds. Absolutely take the time to call past landlords. These steps will increase your chances of getting paid rent each month in a timely manner. Also remember to check for small details. Is the renter's car in nice condition? If so, that means he or she might be likely to keep your home in nice condition.
5 Put key details in writing. You and your tenant should sign a document that spells everything out, including how complaints and repair issues will be handled, whether pets or additional tenants will be allowed, and how much notice you'll provide before entering the home. You can buy lease and rental-agreement forms at www.lawdepot.com and www.landlord411.com.
6 Make the break. Especially if you've lived there for some time, it can be challenging to separate yourself from your home, both physically and emotionally. If someone else moves in, though, you'll have to be prepared to give that person space and privacy.
7 Devise a plan for handling repairs promptly. If you have an older home, this can be a real headache — particularly if you won't be living in the area anymore. One solution is to make arrangements with a nearby handyman who can be called upon to make needed repairs. This is crucial with repairs that affect a tenant's living quality. It's not as crucial with cosmetic repairs.
8 Know how to approach disputes with tenants. Avoid lawyers and lawsuits if you possibly can. Whatever the issue is, try meeting with the tenant first and talking the matter through calmly. Next step: Try mediation for landlord-tenant disputes, which might be offered for free or for a nominal fee by the city or county. The final step, if the conflict involves money, would be small claims court.
9 Pursue tax breaks. Invest in this book: Every Landlord's Tax Deduction Guide, by lawyer Stephen Fishman. Published by Nolo, a provider of do-it-yourself legal help for consumers, the book shows how to take deductions for interest, depreciation, repairs, local travel, long-distance travel, home office, employees and independent contractors, casualty and theft losses, insurance, and legal and professional services.
10 Convert your homeowners' insurance policy to a landlord policy. Such a policy will cover about $5,000 of appliances and other fixtures that are owned by you, the landlord. In your rental agreement, you can require your tenant to buy renters' insurance to protect the tenant's items if anything goes awry.
Laura T. Coffey can be reached at [email protected]
Sources: Nolo (www.nolo.com); "The Accidental Landlord" by Danielle Babb; Consumer Reports Money Adviser; Bankrate.com (www.bankrate.com)