Final part of a 2 part series.
So, you have an empty home with possible income potential sitting in your lap. What should you do with it? Rent it out or sell it? This article will visit some of the pros and cons of each of these scenarios in order to help you determine your best course of action.
People end up with a 2nd home for many reasons. Inheritance, moving due to job relocation and buying for investment are a few. Deciding what to do with an extra home can be very difficult as there are so many different pieces of the puzzle to weigh against each other. Every person’s case is different in itself just due to their financial health and stability. You will need to decide if you’re set up well enough to go for the long-haul rental investment, or try for the short term sale for income.
Make sure you speak with a tax professional about the differences in tax benefits for each option as they vary. Also, seeking the advice of a financial and investment professional help you to make this large decision. The more information you seek from sound professionals the better your final choice will be for your situation.
Rental income investment is good way to earn a long-term return on investment. It is possible to make a rental property a short term investment, if you plan on moving back into the home yourself and your time frame for doing so makes it short term. However, most people use rentals as a business and long-term seems to be the route they go.
Because of the volatility of the housing market, pricing fluctuates. There are many ups and downs and while it has been understood that housing is a good investment because home values climb over time; there has recently been more proof that this is not always the case. As with any investment, the key is to buy low and sell high.
If you’re going for the short term sale to make a quick buck, make sure you look at the housing market for your area of purchase in great detail before making the plunge. If there is a glut of homes on the market, it may be harder than you think to turn that home over fast and make a profit. The longer you have it sit on the market, the more you have invested in it. Consider your costs and include payments for mortgage, insurance, advertising, maintenance (yard, seasonal such as gutter cleaning, etc.) and any other costs that you may not have taken into account for a short term turnover. Make sure you do your research.
If you’d rather try and give a go at renting out your home, consider the following. Can you make it a business? That is exactly what a rental investment is – a business. If you have an emotional attachment to the home, it may be harder than you think to let strangers move in, especially if you plan on moving back into it a little further down the road.
Have you looked into changing over your insurance on the home since it will now be a non-owner occupied home? The costs are quite a bit more as there is liability attached to renting out a home. Make sure you talk to your insurance company in detail about all of the different possibilities to make sure you are fully covered.
Are you fully prepared for the property management aspects? There are Ad creation and placement to consider. Tenant Applications and background checks that need to be processed. Market Rent research to make sure you’re not priced too low or high for the area. Will you be paying any of the utilities? What will you charge for Pet fees and damage deposits? How much will maintenance of the property run and finally – Evictions and lawyer costs. You may even look into a professional cleaning company depending on how many rentals have and how thorough the tenants are in cleaning when they move out. Can you afford for the rental to sit empty if there happens to be a large amount of rentals on the market? In some cases, this may mean making 2 house payments each month.
These are all things to consider in advance. If you feel that you may not be as well versed in all of these aspects, try contacting some local property management companies to help you out. Many offer piece meal services all the way up to full property management. If you’re an out of state landlord, it is almost imperative that you have someone local to look out for your interest. It is an investment after all and you need to make sure someone can keep an eye on it and fix any emergencies as they arise fast and affordably. Be prepared, as many companies charge in the ballpark of 10% of the rent for their slice of the pie. Call around and make sure you get the best price for the services you need.
No matter which route you decide to go, there will always be some negatives that you will need to consider. In today’s housing market, it is amplified a bit because, the trend for the last few years has been a downward spiral and it sounds like it hasn’t quite hit the bottom yet. Make sure you are in a good position to weather the housing storm for whichever journey you choose to partake.
Wishing you many happy returns on your investments, whatever they may be.
Lori Hartjoy, Owner
Blue Mountain Rentals
Disclaimer: Blue Mountain Rentals is not an investment, financial or tax advisory business and anyone that is considering investments is strongly encouraged to seek a professional opinion prior to making a decision regarding any of these matters. This article is written strictly from experience and what I have found in my own research. Use of any information from this site or any other web site referred to is for general information only and does not represent personal investment, financial or tax advice either express or implied.