Q: I have a house that I don’t want to sell right now, but I would like to move and am thinking of renting the house. I hear terrible stories about renters, in which they destroy the property and don’t pay the rent. What have you heard? Are there any experiences that can be shared?
A: Interestingly enough, I’ve actually had exactly this thought process myself! My father was (and is) an avid real estate investor, and as a child I frequently accompanied him on trips to check on his investment properties. Boy oh boy, the things I saw! Broken windows he felt responsible to replace, filthy flooring, the list goes on.
Recently, I’ve thought about renting out my own home for a short period of time, and decided against it, for the time being, due to some of the same concerns. A friend reported that her mother recently had to spend $10,000 to refurbish a home she’d leased out while she was thinking about whether to sell it, due to tenant damage.
For the time being, I’ve decided not to lease my home out. But I took my own friends’ and clients’ experiences and talked with my dear (not-so) old dad and put together this list of five suggestions to helping you make the decision about whether to rent yours, and how to minimize the tenant issues you fear, if you do.
1. What’s the current state of your state? Ultimately, the reason I decided against doing a short-term rental of my own home is that I’d just spent six figures completely renovating it, and couldn’t afford to have someone trash it for the upside of a short-term lease. And none of the stuff in my home is really tenant-proofed (see No. 2, below), so I also had to take that into consideration.
If you feel like the property has pricey upgrades that would be relatively destruction-prone, factor that into your decision-making, and into the deposit and monthly rent price you set if you do decide to rent it out. If the paint and flooring is livable, but you’d want to upgrade it before you sell, renting it out in its current condition might make sense.
2. Research your local rental market. Talk to local property management companies or real estate brokers who specialize in rentals to get several estimates of how rentable the place is (or what it would take to make it rentable), and what rent you can realistically expect to receive.
Then, before you make a decision, do a conservative cash flow analysis, getting clear on what you think you could rent the place out for and how that maps against your existing monthly obligations, like your mortgage payment (if any), property taxes and insurance, as well as any increased expenses you’ll have for maintenance or property management.
And while you’re at it, talk with these same local professionals or visit your local landlords association and request a briefing on whether there are any rent- or eviction-control ordinances that would apply to your property.
It can be extremely expensive to evict even nonpaying tenants in areas with tight eviction-control laws; that should definitely be a factor you toss on the scales as you balance the factors relevant to your decision.
3. Tenant-proof the place. My dad’s experience has been that there are certain property features that make a place less prone to being completely annihilated by tenants. Replace carpet with tile, trade out fancy lighting fixtures and window coverings with standard issue equivalents, and if you have high-end appliances, consider switching them out for Craigslist buys.
Keep in mind that if the property is a luxury home, and you plan to charge a premium rent for it, you might need to keep higher-end touches in it, even if that means putting them at risk.
4. Pick your tenant carefully. It’s tough to rent any property you own out to tenants, but it’s especially tough when that place is or once was your personal home. You might be especially anxious that they will destroy things that have particular personal value to you, and it’s tough to know from someone’s credit report how they will actually live in your home.
Be mindful of this when you consider decisions like how to find a tenant (i.e., by posting a free ad or by hiring a property manager with a tough screening process for prospective tenants) and whether to allow pets.
In fact, the landlords I know who have had the best experiences renting out their homes include people who found their tenants through their own personal on- and offline social networks.
These anecdotes support the idea that there’s something about the unwritten social contract involved in renting to a friend or a friend of a friend that boosts your chances of a successful landlording experience.
5. Consider "rent to own." Lease-options can be a great deal for all sides in the current market climate. You might be able to charge a premium sales price, and a renter who might not qualify for a mortgage right now because of a recent short sale or foreclosure might be able to move his or her family back into a long-term home.
Also, even those lease-option tenant/buyers who end up not exercising their option to buy do tend to take better care of their homes than tenants who have no long-term interest in or commitment to the home.
While I can’t give you a concrete answer regarding whether to rent out your home, you should be able to use these steps and strategies to scope out the opportunity and how feasible and sensible it is for you.
