If you're trying to sell your house, get in line.
At the end of August, there were close to 4.3 million homes on the market, according to the
. So what do you do with your house? One choice is to stay put. But not everyone has that option. Perhaps your family is relocating because of a new job, or a baby necessitates a larger home. If you have no choice but to move, there's another way to make that property work for you: rent it out.
Renting has its upsides, including regular income in the form of rent checks. In the short term, deciding to rent your house rather than sell it will help you avoid the current traffic jam in the real estate market.
But before you hang out a sign that says "Tenants Wanted," here are a few things to consider.
Landlords are bound by rules and regulations that outline their rights and responsibilities. For example, as landlord you must keep the premises in a habitable state. Another rule concerns security deposits -- one month, according to federal law, but some states allow two months' equivalent. These landlord-tenant rules include federal laws, state statutes, local ordinances and specific code requirements.
Check out federal laws on the
. For state laws, take a look at the landlord law section of
, a clearinghouse for landlord-related information. You can also search for state-specific statues on the state laws section at
. And for local ordinances, check with your local housing authority or town hall.
By the numbers
As with any business, becoming a landlord requires market research and the ability to keep detailed records. Take a look at local listings to find out what rates landlords are offering. You can find plenty of listings in the classified section of your local paper or at sites such as
. Visit some of the rental units when the description matches that of your own home to get an appropriate rate comparison.
The rent should at least cover mortgage payments, property taxes, homeowner's insurance and upkeep costs required to maintain the home in a habitable condition. Annual upkeep costs range from 1.5% to 4% of your home's value. But consider hedging toward the upper end since future tenants may not treat your home with the same care you would. Your calculation of rental rates should also include the risk of going without rental income for a few months in between tenants.
Also consider seeking outside help to set up your books and prepare tax returns. You also may want to consult with a financial planner or a legal adviser to make sure you haven't overlooked anything, and that you are properly protected against any lawsuits from future tenants.
The right attitude
In addition to time, effort and money, there is an emotional component to being a landlord. Are you willing to have other people live in your home? Even if you aren't living there anymore, it may be difficult to shift your attitude from homeowner to landlord. If you can't make the switch, you may be able to hire a rental agent to act on your behalf. The agent's role can range from finding new tenants to handling monthly rent checks, as well as the 24-hour on-call duties required of a landlord. The more you ask of the agent, the more expensive the services will be. Expect to pay the equivalent of a couple of months' rent every time you have to find new tenants, or a monthly fee of 15% of rent or more in the event your agent is carrying out regular duties.
Renting your home may allow you to have your proverbial cake and eat it too -- you won't have to sell at the bottom of the market and rental income could cover your mortgage. But renting your home to tenants is an important decision: Potential landlords should do their homework before posting a "For Rent" sign.
Peter McDougall is a freelance writer who lives in Freeport, Maine, with his wife and their dog.