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Renting your home carries risks

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In areas glutted with new construction or large-scale developments, it can be hard to generate the level of rent necessary to cover expenses.

High vacancy rates also tend to depress rents. Rental vacancy rates are highest in the U.S. South at 13 percent and lowest in the West at 6.9 percent, according to the Department of Commerce's Census Bureau. The Midwest (10.6 percent) and Northeast (7.4 percent) fall between the two.

Still, renting out the house at a rate that doesn't quite cover expenses could be preferable to selling the house at a huge discount, Siegel says.

"It might be better than taking a big loss," he says.

Expert help
Homeowners who become long-distance landlords overnight need to follow the basic rules of finding good tenants.

Rather than just renting to anyone, Grimes urges landlords to ask prospective tenants to fill out an application with references who can attest to a tenant's history of paying rent on time.

Grimes also recommends running a credit report on a prospective tenant and using a rental contract that spells out the terms of the rental agreement.

These contracts often are available in state-by-state layman's books available at libraries and bookstores. Laws vary by state, so it's important to choose the appropriate contract.

Including damage clauses and documents that spell out late payment fees (or on-time payment incentives) and eviction procedures can assist the absentee homeowner if trouble arises.

"Don't waive those requirements, thinking it's cheaper in the long run to get somebody in there," Grimes says. "If they're not paying their bills other places, they won't be paying you. Go in with your eyes open."

"If you think finding a tenant is hard," Grimes says, "try getting rid of one."

Long-distance landlords also face some unique challenges. For this reason, owners who are relocating and considering renting out their homes may benefit from consulting with specialists before making any final decisions.

For example, a tax adviser can share how deductions may change as a result of moving out of a primary residence and renting it. Property taxes may increase now that the home is being used as a rental instead of serving as the owner's primary residence.

Homeowners who become landlords also should ask lenders about any new rules that may affect them. Siegel says many lenders recently tightened standards for borrowers who intend to buy a second home while renting out their first property.

In such cases, a lender might do an appraisal of the first house to more accurately gauge whether or not the homeowner is likely to get a decent amount of rent for the property, Siegel says.

Or, the lender may require documented proof of a renter and rental income for the first house before providing mortgage insurance on a second home.

Property management: A solution?
Some long-distance landlords worry about how they'll address day-to-day emergencies when they live so far away. Others don't possess the expertise or stomach for doing landlord duties.

In such situations, Grimes suggests hiring a professional property manager as a practical alternative.

"When the toilet breaks, they get the call," he says.

Professional property management companies screen potential renters, make sure rent arrives on time, perform minor repairs and thoroughly check properties for wear and tear. In exchange, they take 5 percent to 10 percent of gross rent received.

Next: "14 questions to ask a property manager ..."
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