Are you relocating? If you took a new job in a new place, and you just can’t get your house sold, you’re probably feeling like you’re in a bit of a pickle. Whenever a home sells, it’s always our hope to close the sale within a certain amount of time. This is especially true when you’re relocating or need to sell your house before buying another one. But sometimes it takes a lot longer than planned. Don’t fret. You can rent your home.
When You Need to Sell Your House but It Isn’t Selling, Rent It
The people who first came to mind when I started this blog post are those in military service.
Some friends of mine who serve in the Air Force relocated from South Dakota to Wyoming. Since they couldn’t live on base in the military housing provided to Air Force Officers, they bought a home. Then, two years later, the Air Force gave them orders to serve in Wyoming. But they couldn’t sell their house in South Dakota.
So what could they do?
Renting Until You Sell Your House
Renting your home is one way to generate cash flow while you wait for your home to sell. The monthly rent pays all or part of your mortgage costs and therefore, helps you avoid foreclosure. And if the market is slow like it was in 2008, renting allows you to:
- Sell your home for a profit when the market recovers
- Keep the mortgage paid until you find a qualified buyer
But you’ve got to weigh your pros and cons with renting.
What to Know Before Renting Your Home
There are important things to consider about renting before you’re a landlord.
- Costs
- Rates
- Tenants
- Benefits
Costs
The costs of becoming a landlord involve Homeowner’s Insurance, Property Management, and Capital Gains.
- Your Homeowner’s Insurance needs to change to a policy that covers landlords and rental properties specifically. And landlord policies cost more than a standard homeowners policy since landlords need more protection than the typical homeowner.
- Property management could cost you a lot of the monthly rent payment your tenants pay you, especially if you are a remote landlord. Unless you live near the rental, and you are skilled to take care of clogged drains, routine maintenance, or even deadbeat tenants, you will have to hire a property manager. And the cost to pay a property manager is generally around 10 percent of the monthly rent.
- Simply, you must live in your home for two of the five years prior to the sale of your home in order to avoid paying Capital Gains Taxes on:
- up to $250,000 of profit if you are single
- $500,000 of profit if you are married
However, if you rent your home for longer than three years after you relocate and then sell your house for a profit, taxes on that profit gained are due to the federal government.
Rates
What will you charge your renters to rent your home? What’s appropriate? This alone can be difficult to determine due to all the factors that need to be considered.
- In general, it is suggested that you charge at least one percent of the mortgage. This should generate enough positive cash flow.
- Charging one percent of the mortgage must also be reasonable for your neighborhood. Find out what the rental properties near your home are renting for to help you determine what is reasonable. To learn about rates, talk to property management agencies, search for similar rentals online, and check Craigslist, Rentometer, and Rent.com.
- To get an idea about how much money you can expect to receive from a year of renting, you have to factor in your vacancy rates. It is suggested that investment property owners plan for only ten and a half months of occupancy per year.
What if you find that the rent you should charge, minus the costs and vacancy rate, won’t actually be enough to cover your monthly mortgage? It may still make sense to rent out your home until you sell your house instead of attempting to carry the mortgage all by yourself.
Tenants
After researching the costs involved as a landlord and the rates you should charge to rent your home, you still have to find reliable tenants. How?
- Advertise – Advertise online, on rental sites like Rent.com and Craigslist, and on social media. And advertise on local relocation firms, HR departments, and local universities, too. Always advertise the good old-fashioned way, too. Put a sign in your yard.
- Ask questions – Put every applicant through a screening process. Boilerplate applications and lease agreements can be found online, but you must ask your potential tenants about their: income, employment history, rental history.
- Call all of their references.
Note: You can request Social Security numbers for background and credit checks through a website like E-Renter. Background and credit checks cost around $25, but that’s nothing compared to the number of headaches you could be spared.
Benefits
The benefits of renting your home until you sell your house shouldn’t be overlooked.
- Capital Loss. Renting your home and then selling it at a loss allows you to claim the capital loss against your income. That can be a huge tax break!
- Tax Breaks. There are other tax breaks available to you as a homeowner who rents your home. Landlords can deduct almost any expense related to the maintenance and marketing of their rental property. Insurance premiums, repairs, advertising costs, landscaping services, property management services, mortgage interest, and travel expenses related to the rental can be deducted.
More Notes Worth Considering Before You Rent Your Home
Renting your home until you sell your home is a great way to generate cash flow, cover your mortgage costs, and avoid foreclosure. But if you choose to rent your home:
- Plan to rent it for at least one year.
- Draw up a lease. Most renters prefer the security of a lease. But include a clause in the lease about the home being for sale. And see a real estate attorney for help with making your lease agreement clear, making sure it protects you.
- Know the rental laws in New York.
- Save money for repairs. You will have to make repairs before your renters move in and again after they move out. You are responsible for repairing anything major that breaks, such as the air conditioner or refrigerator.
Do you need to sell your home? Call Charles D’Alessandro, your Brooklyn Real Estate Agent with Fillmore Real Estate at (718) 253-9600 ext.206. Or email him at charles@brooklynrealestatesales.com. Charles can help you sell your home or protect your home as a rental property.
Charles D’Alessandro
Your Brooklyn Real Estate Agent
718-253-9600 ext. 206
Charles@BrooklynRealEstateSales.com
The post When You Need to Sell Your House Now But It Isn’t Selling appeared first on Brooklyn Real Estate Blog.
SOURCE: Brooklyn Real Estate Blog – Read entire story here.