With both the resale market and the rental market at record-high levels, many homeowners are wondering whether selling their house is the best option or if keeping it and turning it into a rental property makes more sense. The opportunity to receive rental income and potentially experience further price appreciation can be appealing. So how do you decide?
The first question to ask yourself is whether you have the desire to become an educated real estate investor. Becoming a landlord isn’t for everyone and going in blind can be problematic – just ask me about my fourplex in Anchorage to learn all the things that can go wrong with a rental property – probably a great (therapeutic) article for a future edition!
Once you’ve determined whether you want to further explore the joys of real estate investing, here are some additional questions to ask yourself:
If you didn’t own this property already, would this be the property you’d purchase as an investment property?
Is the property easy to maintain? Or is it older with a high likelihood of future, expensive repairs? Do you have money set aside for potential repairs?
Do you have an excellent property manager you can count on to ensure you have great tenants who will take care of the property?
If you plan to manage the property yourself, how will you find your prospective tenants? What kind of screening process will you take them through? Will you do credit and/or background checks?
How will you/the property manager respond if your tenant says they can’t afford to pay rent this month? Do you have money to cover the mortgage and utilities if this happens? Many landlords experienced this in 2020 due to the COVID-19 pandemic and the resulting job losses.
Do you intend to turn your property into a long-term or short-term rental? If short-term, do you have furnishings, bedding, kitchenware and such for the prospective tenants? Do you have a good cleaning person lined up to change the bedding, clean the house, etc during short-term tenant turnover? Have you checked your HOA rules to ensure short-term rentals are allowed in your subdivision?
Have you talked to an attorney in case you have a bad situation and need to evict your tenant? Do you know the laws regarding leases and evictions?
Have you talked to your insurance company about a potential increase in premiums for a non-owner-occupied home?
Will you allow pets? Cats? Birds? Dogs? How big of a dog? Will you require an additional pet deposit? Will it be refundable or non-refundable?
How will your neighbors feel about you turning your house into a rental property? You may receive calls from them if things aren’t going well with your tenants.
Will you collect rent by mail, in person, or electronically?
Do you have a list of vendors ready and able to handle any repairs that come up on the property?
How often will you/the property manager do a physical inspection of the property? Do they charge additional fees for inspections? Do they mark up any needed repairs?
There are many positive things about owning rental property. Real estate can be a great investment and an awesome way to build wealth for the future. There can also be tax advantages, depending on your personal financial situation.
Just be sure that if you decide to move forward with renting versus selling, you have answered the above questions, educated yourself on the pros and cons, and are fully prepared for your new journey as a real estate investor!