What a past few years for home sales. I mean really, with interest rates this low, it’s shocking that more people are not buying homes. Right?
Partly. Many real estate agents out there will tell you that it’s a lack of credit and borrower funds that is keeping buyers from securing mortgages and buying homes. And they’re right. Partly.
Remember, there is a seller side to this whole equation – the person who is trying to sell their home at what they think is a fair price – but can’t.
Time for my opinion. You see, so many people who purchased homes in the last five years have gotten stuck. Meaning, as some of these people were put into the position that they needed to sell, they found that they can not sell the home at a price that would cover what was owed on the mortgage plus fees and taxes.
The solution for many people in this situation is to rent the house. They’ll wait for the market to improve and sell in a couple years so that the worst case scenario is that they do not have to bring money to closing. I can’t tell you how many clients Hometown Property Management took on in the last year in this exact situation, but I can tell you that it has been a lot.
Renting is a good alternative, even if the monthly rent comes short of the total monthly expenses (mortgage, taxes, insurance, fees and maintenance). What looks like a monthly loss on renting your house could really be disguised as a gain. Allow me to illustrate:
1) Let’s say your house rents for $1200 per month and your total monthly bills are $1400. You’re losing money, right? Not exactly. First of all, it is likely, with each month’s mortgage payment that more than $200 is going toward principle. So, you’re breaking even. Not to mention likely tax advantages such as depreciation on the building, deductions for mortgage interest, taxes, insurance and fees – you may end up making a few bucks come tax season in a situation that originally looked like a loss. Of course, I urge you to discuss this with a qualified tax pro.
2) Another scenario. Let’s say that after everything comes out in the wash (including equity gained), you are still losing $200 per month. What would happen if you instead sold the house at a $10,000 loss? It would take 50 months, losing $200 per month to equal that $10,000 loss. Plus, rental rates typically rise every year. If you are in this situation, sit down, do the math, put together a timeline and figure out what you’re able to stomach and for how long.
What do I do if I want to rent my home?
Consult with a licensed expert that specializes in residential leasing. Being a landlord is not easy. We can help guide you through the process and give you at least a starting point for how much you can rent your home and what your expenses will be. Do not evaluate a property manager only on how much their commission is and for how much they think they can rent your home. Understand extra fees that are charged and grill the company on how they evaluate prospective renters – the last thing you want is an unqualified tenant that doesn’t pay, or worse, causes damage to your investment. Your house will not rent based on how much a property manager thinks they can get for it – it will rent based on what qualified tenants are willing to pay for the size of your home, amenities and location.