Many homeowners talk about backup plans when they are getting ready to sell. They say things like “If I don’t sell it I’ll just rent it out a while.” or “I can always rent it out if I don’t get my price.”
Yes, you do have the option of renting out your home if you decide not to sell, or aren’t able to sell. While this sounds like a logical backup plan most people don’t actually do it and there a few reasons. Once you add them all up many people find that renting it out for a period of time is not worth it. Here are a few things to consider before making this decision though.
- Are You Ready To Be A Landlord? This is the big question. Renting your house means dealing with tenants. We can screen your tenants as best we can, but there is no way to know if they are going to keep your home clean and/or maintained according to the standards you do. There will be a time commitment to maintain the property. It also means dealing with repairs and collecting rent.
- How Will The Tenant’s Usage Effect The Value of The House? Tenants are not known for caring for rental properties like an owner would. So if they put significant wear and tear on the appliances or they mess up the walls and you have to have them repainted this could cause more expenses down the road when you go to sell it. If you have high end appliances or kitchens and baths this should be a particular concern.
- Will You Have a Lease? If you have tenants you will most likely have a lease. If it is a year lease you’ll have to honor that time frame even if you want to sell it. Which means if you sell it while there is a tenant there the lease would transfer to the new owner. If the potential buyer is an owner occupant they may not be able to close on the house until it is vacant. One option that landlords do when they are planning on selling is a month to month lease. This way you are not committing to a year lease and if you’re able to sell it you can give the tenant proper notice to leave before the closing happens. Just keep in mind that the tenant can also end their lease on shorter notice. (Talk to your lawyer about these scenarios)
- How Will You Show The House To Prospective Buyers If It Is Tenant Occupied? As I mentioned above tenants don’t usually take the best care of rental properties or get them to the cleanliness level needed for showings. We’ll also have to coordinate with the tenant to allow access to the house. The tenants have no incentive to make sure the showing goes well or even happens at all because if the house sells they may not have a place to live anymore.
- Expenses? Will the tenant be paying all the utilities? Will the rent cover the taxes, mortgage, insurance, etc? Do you need help finding and screening tenants? If so who will be paying the real estate agent commission? Do you have money budgeted for repairs and clean up after they move out? Is there money budgeted for vacancy (if a tenant moves out and you have to find a new one)? These are all budget considerations to consider.
- Who Will Take Care Of Exterior Maintenance? – Sometimes you can ask the tenant to care for the lawn and landscaping and sometimes the landlord does it. It all depends on the situation and the amount of work involved. You could also hire someone to do the yard work as long as it is budgeted in.
Whether or not you decide to rent your home if it doesn’t sell is entirely up to you and your situation. Just be sure to look at the financial and time concerns thoroughly so that you get an accurate idea of how much money you will be making or losing.