Are you thinking about turning your home into a rental? With home values so squishy right now, renting out your home instead of selling it at a loss may make financial sense.
Our family owns several rental properties which provide us with some distinct financial and tax advantages. The extra income combined with some nice tax deductions are why many people choose to become landlords in the first place. Unfortunately, there is also a few surprises to owning a rental, some which never occurred to me until becoming a landlord myself. If you are thinking about renting out your home, here are five little details you should be aware before making this decision.
No more homeowners exemption. The homeowners exemption (HOE) is the tax break a homeowner gets for his primary residence. When the residence is converted to a rental, the HOE goes away and the property taxes increase. How this affects you as a landlord is that the overhead just got a little higher which means keeping less of the rent check.
Landlords pay for sewer & trash. The vast majority of landlords pay for sewer and trash to prevent trash from accumulating on the property and to avoid the possibility of a lien against your rental from an unpaid tenant bill. Some landlords even will pick up the costs of the water bill to prevent losing their landscaping and mature trees. All these costs also take a chunk out of rental income.
You will still need to tackle routine maintenance projects on your home. I love my renters, really I do. But none of them know the least little thing about home fix-it tasks. Owning a rental means that you still have to take care of all the details that keep a house running smoothly because the renters won’t or can’t. For out-of-state landlords, be prepared to keep a handyman on call.
You are indirectly responsible for the behavior of your renters. Most communities have laws to preserve neighborhood quality. The two most applicable laws for landlords fall in the areas of Building Code (or City Code) and the Police Code Nuisance Housing laws.
What these means for you as a landlord is that, if your renters are junking up the property, you are the one ultimately responsible for the weeds and garbage removal. And if they are running a meth lab? You get to cover the cost of cleaning that mess up, too.
Beyond the condition of the property, landlords are also indirectly responsible for tenant behavior. In our community, landlords of nuisance properties who have been warned by the police department yet continue to permit nuisance behaviors can be fined, forced to evict the tenants, and let the house sit vacant for 6 months to break the cycle.
No one will take care of the property as well as you do. The sad reality is that no one will ever take care of the house as well as you do. Most landlords accept the scratched floors, door dings, and holes in the wall as the cost of doing business. But, if you are a compulsive sort that gets upset with carelessness and slopping housekeeping, then renting out your home may be a bit more stressful than what you’ve bargained for.