Dear Real Estate Adviser,
Our home is vacant and has been on the market for several months. We had to move for a job in a different town. How long should we wait before we seriously consider renting out the place?
— Allen P.
Some folks might say that any income stream is better than none, so why not rent out your home right away? But depending on lots of variables, such as your home’s location, your price range, area housing demand and rental dynamics, that may be a hasty move.
First, the cautions: You may have to rent out the place for at least a year to placate renters, though the right party might need it for just six months. Either way, you will make it unsellable for a potentially lengthy span. Showing your home to prospective buyers while renters are still there can be intrusive for them and a real challenge if renters are sloppy or suddenly grow uncooperative.
When renters do vacate, you’ll have to clean and prep the place again and possibly have it reinspected and reappraised — work you’ve no doubt performed recently. Before making any decisions, you or your selling agent (who ideally handles rentals, too) should do an assessment of the rental market and look at demand statistics and rent rates for single-family homes like yours. Talk with a property management firm to get additional insight. It’s true that a lot more people are renting now due to foreclosures. But realize that the same conditions that made mortgage payments tough to maintain may make timely rent payments a challenge, too. It can be expensive to evict nonpaying tenants.
Since you now live out of town, you’ll need to find someone to look in on the property from time to time or even come to the rescue when the house needs repairs or the air conditioner breaks down in July. Realize, too, that you’d need insurance for a nonowner-occupied home, which is typically more expensive than homeowners coverage.
There are some potential pluses. The rental strategy may be an effective way to “wait out the market” until sales pick up, which they may well do over the next year or so. Tax write-offs could also tip the balance for becoming a landlord. You can deduct up to $25,000 in annual rental real estate losses if your adjusted gross income is less than $100,000 and may be able to shelter a significant amount of cash flow with depreciation deductions on the home, meeting certain conditions for both. You’d best see an accountant or other tax pro to run these numbers.
Of course, if you’re facing foreclosure on your for-sale home, or you feel crushed under the weight of dual mortgages, you might be forced to test the rental water quickly. As a compromise, consider rent-to-own. These renters-turned-buyers are more apt to keep the place in better shape because they have a vested interest in it.
If you can hold on until the next peak selling season, which runs from February through mid-summer, your buyer universe will likely grow, presuming that you’re well represented by an aggressive and savvy agent. A side note: The house is empty, you say. Well, showing a home with at least a small amount of staging, including a few tasteful furnishings, some neutral decor and a few other touches, will make it look less empty and a little more inviting to many buyers.
Good luck on your decision.
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