Renting your home carries risks
|By Lora Shinn Bankrate.com
Stephanie Smith couldn't sell her home.
Smith, her husband Mike, and their three children moved from Woods Cross, Utah, to Duvall, Wash., in 2007 after Mike
was offered a Washington-based job.
In 2005, the Smiths paid $195,000 for their four-bedroom new construction home in Woods Cross and had almost no equity.
So, the couple needed to sell the house for at least $250,000 to bring down the monthly payment on their new home in more expensive Duvall.
But in Woods Cross, the housing market turned sour.
"All of a sudden there was a dip," Smith says. "In our neighborhood, most people sold their houses within a week. But
suddenly there were a lot of houses for sale and nobody was buying anything."
Because the Smiths couldn't sell the Woods Cross home, they took another tack: They decided to rent out the house and
serve as long-distance landlords.
However, the decision to rent created new issues. In the past year, the Smiths have gone through two renters. They barely
make enough in rent to cover their Utah mortgage.
The Smiths rely on Mike's brother to do repairs on the home. They hope to sell it -- to either the current renters or to
new buyers -- this fall.
But living in two states away makes things more difficult, Smith says.
"I can't see the house, I have no idea what's going on," Smith says. "What does it look like? I can't pop in and just check.
"I'm so far away, there's hardly anything I can do."
Sell or rent
The Smiths are hardly the only couple to suddenly and unexpectedly become long-distance landlords. When faced with both a relocation and
a house that won't sell, some owners decide renting the house is the only option left.
Such a decision should not be taken lightly, experts warn.
While the Smiths haven't faced any disastrous scenarios as landlords, others living thousands of miles away aren't so
lucky. Mansion-sized headaches can include destructive tenants, missing rent and eviction notices.
“There are two ways you really get to know someone -- when you marry them and when you rent to them.”
Denny Grimes, a Fort Myers, Fla., real estate agent and real estate columnist for the Fort Myers News-Press, says
long-distance landlords must remove the rose-colored glasses and prepare for the realities of turning their home into a rental.
"When people make a decision to rent, most make the mistake of not renting property like a business," Grimes says.
He shares a real estate saying that underscores the challenges facing long-distance landlords.
"There are two ways you really get to know someone -- when you marry them and when you rent to them," Grimes says.
Dale Siegel, a real estate attorney and mortgage broker with Circle Mortgage Group in White Plains, N.Y., agrees that
homeowners need to tread carefully before jumping into the landlord business.
"If you plan on renting, make sure you can cover your monthly nut," Siegel says, referring to the cost of principle,
interest, taxes, insurance and unexpected repairs.
"If not, how much will renting cost you each month?" Siegel asks.
Before deciding to rent out the house, an owner should closely look at the competition's rent and decide whether the
market rates are high enough for the owner to break even.