Should You Turn Your Home into a Rental Property When Forced to Move?

How to get tenants to move out

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Life changes. It can throw us a curveball that nearly takes us off our feet. Perhaps you have reached a point in life that you will need to move out of your home. It could be because of a job change, a financial reversal, or a change in familial status. Maybe you just want to downsize. Either way, you might be wondering,

“Should I rent out my house or sell it?”

01

Before You Decide to Rent Out Your House – Consider This

There are some personal items that you need to consider before you look at the financial side of the decision. Consider the following questions:

  • Would you want to live in the house again?
  • Is this a temporary arrangement?
  • Do you expect to return to the area within 5 years?
  • Could you afford to pay the mortgage for several months until a tenant could be found?
  • Will you be buying or renting after your move?
  • If buying, could you qualify for another mortgage if you kept this one?

If you expect that you may be moving back into the area within the next few years and would love to move back into this home, then renting it out could be a good decision.

03

The Benefits of Renting Out Your House

Think of it like this, your tenant is paying off your mortgage and earning you equity in the house each and every month. Even if you never wanted to move back, if the property has a positive cash flow (think at least $100 per month) then it could be a good idea. If in the future you decide to sell, you will have more equity in the property plus the appreciation in value over time. That is all in addition to the pocket change that you earned.
02

Can You Afford to Rent Out Your Home?

The next consideration is to figure out if it is profitable to rent out the house. How much could you reasonably rent the house for? If you are unsure, check with your real estate agent or a local property manager.

You can expect that 50% of the monthly rent will be needed to pay for the property taxes, insurance, repairs and maintenance. Double check this against your actual expenses for the last year. Remember that you will need to get landlord insurance, which is higher than a homeowner’s policy, and change your property tax status from homestead to investment, which will also increase your expenses. Make sure you also add in any advertising costs and credit check fees to get a tenant into your property. You may want to pay an attorney to draft a lease agreement or contract with a property management company to look after the property while you are away. You will find that the expenses will absorb about half of your rental income and that is before you pay the mortgage.

If you have a mortgage on the property, you will need to subtract that as well as that is not part of the 50% rule. Now, if there is any money left over, that is your monthly income. If it is a negative cash flow, then that is the amount that you will have to pay out-of-pocket each month to keep the house, even with a tenant in the property.

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