When you purchase a home you make a mental judgment about how long you plan to live there. If the time frame is relatively short — just a few years — it normally doesn’t make sense to purchase. Closing costs from buying and selling plus realtor commissions when you sell will eat away a significant amount of your cash.
But sometimes our mental judgments are wrong. We plan to live in the house for a long time, but life circumstances force us to move away unexpectedly. It might be because of a job loss, a big promotion, or a family emergency, but suddenly you find yourself with a home that you either need to get rid of or find a way to rent it. With the real estate market tanking over the last several years, selling your home may be financially impossible and lead to a short sale. Instead you can rent it out and actually end up profiting off of the situation.
Photo by Living in Monrovia via Flickr
Renting your home is not for the faint of heart. Letting strangers move into your house (a significant financial asset) is a scary prospect. You can move forward, just don’t jump in without thinking everything through and protecting yourself legally and financially.
If you have had your home on the market with a realtor but haven’t had any acceptable offers, that same realtor can usually help you advertise the home for rent. Most real estate agencies will help prospective buyers find homes to rent in an area they want to live in while they save up a down payment or get comfortable with the area. You can expect to pay a fee to the realtor of 1 month’s rent for a 12 month lease that they set up for you. Some agencies will also handle all of the property management for you: accepting rent checks, scheduling maintenance, and so on.
Alternatively you can hire a property management company to do all the work for you. This option is similar to using your real estate agency except that property management companies exist only to rent out property for property owners. Real estate agencies really would rather sell a home and may not do as good of a job finding you a rentor. The property management company’s fee is usually a percentage of the total rent each month (ranging from 8% to 12%) plus all or part of the first month’s rent.
As a last resort you can try renting the property out on your own. I say as a last resort because unless you are a real estate and leasing pro, this option can be very risky. Not having enough experience can expose you to liability and financial loss if your renters aren’t screened well, damage the property, or even destroy the home. Plus, if you are living in another state it can be a big hassle to even get the home shown to potential renters, get the paperwork signed, and accepting payment each month. Any problems that come up in the middle of the night will require a call to you, and you will have to track down the appropriate maintenance company to take care of the problem.
However, if you can successfully find good renters you will save yourself all of the fees that a property management or realtor might charge you to rent the property for you. It’s the classic trade off of doing something yourself to save a buck versus paying someone else to do it well.
Many states and counties publish information for landlords and tenants that contain all the rules and regulations. It is highly recommended that you obtain this from your State or Local government.
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