Usually you hear all the reasons that you SHOULD invest in real estate. Well, in this post we go over when you SHOULD NOT rent your home. Being a landlord is not for everyone. Especially if you didn’t intend to be one from the beginning! Use this post to help you decide whether you are in the right situation to rent your home.
Chances are when you bought your home you weren’t thinking about turning it into a rental property. You may have paid a little more for the home because it was “the one”. Or maybe you made a much smaller down payment resulting in a higher monthly mortgage payment. Also, if you live in Michigan, your property taxes will increase when you stop living in your home because of the Principal Residence Exemption. Your tax millage rate WILL INCREASE 18 millage points when you are no longer able to claim the Principal Residence Exemption. All of these factors may result in a cash-flow negative situation when you rent your home.
Before you make the decision to rent your home, take a very close look at the expenses involved when renting your home. For help with this, check out our blog, How to Calculate Michigan Property Taxes. Research what the likely rental rate will be for your home to make the most informed decision. Be aware that some expenses you currently pay may increase if you decide to rent your home.
If the thought of ever changing the paint color in your childhood bedroom makes you teary-eyed, then renting your home may not be the best idea. A special flower garden placed in the backyard is most likely NOT going to get the same attention under a renter as it did with you. A tenant will not care for the home as you did as an owner. It doesn’t mean they are going to destroy the home, it just means the emotional connection just isn’t the same as it may be for you.
Recognize that owning a rental property is owning a business. If you can’t put your emotions about the home aside, you will not enjoy renting your home and your tenants will not enjoy renting from you!
Let’s face it – things break and things go wrong. That’s life. Being a responsible and successful landlord means fixing problems in an efficient, effective and timely manner. For instance, if a furnace needs replacement, and you don’t have any cash reserves, you may be put in a difficult situation financially. Investment properties have planned and unplanned expenses. Things happen.
Keep a cash reserve set aside just for your rental home. I would recommend no less than $2,000 – $3,000 or more depending upon the home and add to it regularly over time. This should be above and beyond what you need for your own personal reserves. Remember to treat it like a business and keep things separate from your personal finances.
Most tenants pay rent on time every month. Some tenants are not so reliable and others may start off great and sour later on. You should not rent your home if you will be dependent upon receiving rent exactly on-time everytime. In other words, you should be financially stable before considering any rent payments. Even with a great tenant you will eventually have a vacancy and that means not receiving rent payments and incurring turnover expenses while it is vacant. Having a little cash cushion goes a long way in lowering your personal stress.
Take the time beforehand to look at the financial impact of renting your home. If you are relocating, you are likely going to have another rent or mortgage payment to make each month. How do your finances look with a second mortgage payment?
As of the time this article is being written, the real estate sales market is very hot in West Michigan. You could likely make more money by selling your home now than by renting it out. Plus, by selling your home, you can avoid all of the potential headaches that come when you rent your home.
Talk to a Realtor to determine the market value of your home and the current market conditions. Use this information to help you decide on the best course of action to achieve YOUR long term goals.
Turning your primary residence into a rental property is not be the best choice for everyone. Even if the rental market is doing well in your area you could still end up in a tough situation. Do your homework before you decide to rent your home.
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