Owning and renting real estate can be extremely lucrative, but for the small property owner the hassles and risks often outweigh the rewards.
Rental Costs and Vacancy
Finding a tenant can take time – and you are carrying the mortgage and other costs each month. Are you financially able to make these payments if you can’t find a tenant quickly? Don’t forget to consider commission costs if you use a realtor or rental agent to find a tenant – this can cost a month’s rent or more.
Maintenance is a Headache
If the heat fails or the plumbing breaks down it’s you who has to deal with the situation, so make sure you are prepared to handle this before you decide to rent.
Laws applicable to landlord-tenant rights and relationships vary with location, but many seem to share an almost overt hostility toward the landlord. If a tenant refuses to make rent payments it could take you months (even years!) to complete an eviction – at a cost of thousands in legal fees. During this time you will be paying the mortgage, taxes, insurance, and maintenance costs – with no rental income to offset these obligations.
Beware of Damages
In most areas a landlord is allowed to collect a security deposit equal to one or one and one-half month’s rent. While this amount will generally cover the cost of minor repairs or clean up, it is grossly inadequate to protect against any major damage. Disgruntled or malevolent tenants can cause thousands of dollars in damage, and your only real options are to sue – at considerable additional cost – or to absorb the repair expense yourself.
Make Sure Your Finances Add Up
Ideally, the rent will cover the mortgage costs and taxes on your old home, allowing you to apply your own income to a new purchase. Your lender, however, will probably view this arrangement with some scrutiny. Before you decide to rent your old home, make sure that you will not have any difficulty obtaining financing for your new house.