Should You Rent Your Home?

You call local brokers to check out the costs, advantages, and disadvantages. Usually clients ask:

Question # 1. How much can you rent my house for?

Question # 2. How do I know a tenant will not trash it?

Question # 3. How much do you charge?

Most homeowners forget that a rental will need to be maintained while you are gone and renters live in the house. You also need to consider advertising expenses, property management expenses, turning costs (cleaning and painting between tenants), utilities between tenants, property taxes, property insurance, accounting costs and a vacancy rate.

Depending on local market factors, these expenses often run 30 to 40 percent of income before the monthly mortgage cost. In my area, costs can look like this:

• Vacancy rate: 5 percent
  
• Property management: 6 - 12 percent, depending on services
  
• Property maintenance: 5 percent
  
• Advertising: 1 percent
  
• Turning expenses: 2 percent
  
• Utilities: 1 percent
  
• Property taxes: 15 percent
  
• Property insurance 1 percent
  
• There are also benefits. You can depreciate your property for tax purposes and
  
• there might be appreciation.

If you've just purchased your home and are being suddenly transferred, the odds are that you will have trouble making the numbers work, unless there is a housing shortage in your market.

As a practical person you will most likely take out the Sunday paper and call local management companies to establish the rental rate for your house. Be realistic. Being overconfident sets you up for unexpected problems.

Size and Location Drives Rental Values

Think of your rental as a showpiece and leave it in great condition -- the condition you would want it to be in if you rented. Bear in mind, however, that location still rules with real estate. Good locations rent faster and get better rents. Poor locations take longer to fill and get lower rents. If your property is in disrepair and in a poor location it may not rent at all.

Don't leave furniture (it's usually okay to leave the range and refrigerator, though this varies by market), unless you are willing to live without it. Furniture can get marred, cigarette burned, scratched and possibly borrowed on a permanent basis.

Finally, if you want to hire a property management firm, interview at least three of them and then compare their services. All of them will have different estimates of rental value. As well:

• Call their references.
  
• Ask for the success stories -- and failures.
  
• Ask how they will take care of your tenants.
  
• Ask how fast can the property be turned when it's vacant, and how long it takes to repair problems?
  
• Does the property manager inspect the property?
  
• Do you get monthly reports?
  
• Do you get copies of all bills?
  
• Can you phone, e-mail or fax your property manager?
  
• Are employees experienced?
  
• How do they handle evictions, should that become necessary?
  
• Are there special services they offer?
  
• Is maintenance handled in-house or through an outside contractor?
  
• Are you dealing with an Accredited Management Organization (AMO)?
  
• How much insurance do they carry?
  
• Can you talk to the owner of the company if you want?
  
• Do they appreciate your business?
  
• What is their fee structure?
  
• What happens if a tenant wants to buy the property?

Owning a rental house is not for the weak hearted or for those with tight budgets. Things can go wrong and will go wrong. But if you have done the research and planned ahead, rental property can be a profitable investment.