mortgage

Managing a rental

Steve McLindenq_v2.gifDear Steve,
I own a home in North Carolina and plan to move to California. What's the best thing to do, rent my home or sell it? If I rent it, what are the things that I need to know and do? And would I need to get someone to manage the rental?
-- Faye

a_v2.gifDear Faye,
The least complicated solution, is seems, would be to sell the place, assuming you'll be able to gainfully do so in this market and that you're not upside-down on your mortgage.

As for being a landlord: If you plan to rent out your home, you absolutely must treat it like a business. And since you'd be an out-of-state, or "absentee" owner, I strongly suggest you hire a property manager, who typically charges 8 percent to 10 percent of the rent as a fee.

Often, for an additional fee, such management firms can help you find and screen qualified tenants (running those all-important credit and background checks) and help determine an equitable asking rent.

An alternative to this is renting to someone you know and trust who can also make minor repairs. But such tenants are a rarity. If you do rent to a relative or friend who doesn't work out as a tenant, you may face irreparable relationship damage.

Either way, I strongly recommend you keep enough cash reserves on hand to pay that North Carolina mortgage for a month or two, should you lose a tenant unexpectedly.

As a landlord, you would get deductions on expenses and depreciation, including property tax and mortgage interest rates, as well as for marketing, repair and maintenance costs. And with so many foreclosures occurring, the universe of potential renters is expanding.

If for some reason you were to return to North Carolina and resume living in your house, you could still be exempt from the 15-percent capital gains tax hit on profit from a sale (up to $250,000 in gains for an individual or $500,000 for a married couples), as long as you lived in the house for at least two of the previous five years. But the five-year clock starts once you vacate. You might want to check with a tax expert on this.

Important: Before you make your "sell" or "rent" decision, make sure that renting out the place will not adversely impact your financial arrangement with your mortgage lender or elevate your homeowners insurance rates to a point where renting becomes a losing proposition. It's best to be aboveboard with both parties on these issues.

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