Answer these questions before you hammer a ‘for rent’ sign in your front yard.
Faced with a mandatory move and a house that won’t budge? If you’re thinking about renting it out,
Richard Novak, assistant vice president of USAA Home Circle™,
recommends first answering these questions:
Do you have enough money to manage a rental home? “It comes down to a cash flow question,” says
Novak. Plan for the worst-case scenario,
such as paying expenses without having renters.
Do you want to return to the house one day? For those who have to move to a job or
military installation from an area they enjoy, renting the home could be a
smart plan.
Do you have the temperament for tenants? You’ll have to deal with maintenance, and
you’ll have to call when rent is late.
Hiring a property manager as a liaison with tenants can provide
objectivity, notes Stephen Foster of the National Association of Residential
Property Managers. Yes, hiring such a
service is another expense. But you
might find it well worth the cost.
Do you live in a rental community? Consider whether you’ll have a steady stream
of creditworthy renters to choose from.
Towns near military installations, colleges or universities, and urban
hubs have lots of potential candidates.
Checking credit history and referrals can ensure they’ll pay the rent on
time.
Do you have business sense? Landlords deal with accounting, tax
deductions, leases and the like. Fannie
Mae recommends being willing to hire a bookkeeper, accountant and lawyer. You might also turn to a property manager for
help identifying tax-deductible expenses.
“Just about everything is tax-deductible on a rental home,” says Foster,
“including property management fees, insurance cost, mortgage interest and
repairs.”
Do you have an exit strategy? Think about what will happen to your
financial situation if you can’t sell at a profit down the road. “It’s really an investment risk decision,”
Novak says. Are you willing to take it?
FOR STARTERS
Create a rental application. Get employee history, previous landlord
references, a Social Security number and approval for background checks. Websites such as legalzoom.com offer help
with such documents for low fees.
Do a background check. With permission, use the applicant’s Social
Security number to check credit history.
Order reports from the three major credit-reporting agencies—Equifax,
Experian and TransUnion—and follow the guidelines of the Fair Credit Reporting
Act.
Create a rental agreement. Don’t settle for a handshake. Spell out terms in a written agreement. Again, legal websites can be of help.
Get proper insurance. You’ll need rental home insurance, and you
should suggest renters have their own renters insurance, as you won’t be
responsible for protecting their personal items.
Article Reprinted from the Summer 2011 USAA Magazine
