Although the real estate market has made a turn around and homeowners are reporting to seeing the equity in their homes starting to move in a positive direction, some may still not have enough equity in their current homes to sell but may have come across the perfect home that better fits their family needs and wonder if becoming a landlord is the right thing to do.
Being a landlord may not be exactly the right avenue for you if you have not carefully thought through what this actually means. Below are a few things to consider before you decide to put your current home available for rent.
When you first moved into your home, like many, you probably decided to make it fit more to your style and taste. Whomever rents your home is going to want to do the same thing. This may include painting, changing flooring or a number of other possibilities. As a landlord, you will need to be able to emotionally remove your feelings from equation. Many landlords will put a clause in a rental agreement that requires the renter to get written approval from the landlord. So if you have a favorite wallpaper or paint color, be prepared to have items as this changed.
TAX ADVANTAGES OF BEING A LANDLORD
If done correctly and run as a business, you may be entitled to a variety of tax deductions. On a down side of renting out your home, the rent payments are now considered income and will need to be reported to the IRS as such. If you set up your rental/lease as a business, you will also be able to write off repairs, taxes, insurance and other fees. With this being said, be cautious about starting anything and protect yourself to be sure that you are covered by consulting with a tax accountant.
One moment being a landlord sounds like it is going to be a great and easy task until your phone starts to ring off the hook at 2am due to a leaky water pipe or other. As a landlord, you will need to make a decision if you want to be an active landlord or if hiring a management company would be the better move. Management companies may vary in costs and by doing your due diligence you should be able to find one that will work with your needs.
Another point to consider, is the possibility of having two mortgages. There may come a time when your renter moves out in the middle of the night or their agreement is up and you are not able to find another immediately. Are you ready for the possibility of having the responsibility to pay two mortgages? This may be the worst scenario, but it is one that happens more and more.
Before you jump in to being a landlord, make sure you have done your homework and understand what it truly means and by all means make sure you understand the tax implications both good and bad it will have on your annual taxes.