Should You Rent Your Home?
A scenario: You find a great job in another state. Do you sell or rent your current house? There is a lot to consider: Think about reasons for maintaining ownership. Do you want to keep the house as a possible home again if you ever move back? Is it possible that you may be coming back within a few years? Are you looking for a tax break through property depreciation? Do you want the property as a retirement investment? Are there economic factors locally that are expected to increase or decrease property values in the near future?
You'll want to consult your financial advisor, because there are several financial issues to assess. If you have lived in the home for two or more years, you can rent the house for up to three years without losing the chance to sell it with no capital gains tax. As long as you have owned and lived in the house for two of the five years prior to the sale, any capital gain on the sale would generally be excluded. And when you rent your house, you get to depreciate it for tax purposes and also deduct other expenses such as property taxes, repairs, association fees, etc. Even if your rental income doesn't cover all your expenses, it still may be worthwhile to rent the home if the property value is likely to increase before you sell it. Your annual losses might be tax deductible, saving you money on the taxes you pay.
Another consideration: are you prepared to be a long-distance landlord? There are other costs involved as well, often running 30-40% of income before the monthly mortgage cost. You need to charge high enough rent to cover your expenses and take home a profit. With mortgage payments to contend with and a tough competition, you may only be able to profit $200 to $400 per month on a property.
It’s not essential to hire a property manager, but it can make life easier, particularly if you move out of the area. A good property manager can make your life much easier, particularly if it turns out repairs need to be made or that your tenants create issues. Proeprty managers typically cost about 8-10% of the rental income. Interview at least three companies and be sure to ask about accreditation, customer service, references, screening, experience, vacancy rates, maintenance, monthly reporting, handling evictions, insurance, fee structure, dealing with prospective buyers, inspection of the property, and any special services. Even if you hire a property manager, you may be responsible for any complaints, repairs, and evictions if it comes to that.
It will cost more to insure a rental property, especially if you don’t live in the building. Because you will no longer be able to claim “primary occupancy” on a rental property, you’ll be considered an investor. This means you’ll need a special landlord policy which is typically about 25 percent greater cost.
Many insurance companies and towns in New Hampshire also require hardwired smoke detectors in a rental property, so be sure to check that out with your local Fire Department and with your insurance agent.
If you decide to rent the house, where do you start? First complete any deferred maintenance such as interior and exterior patching and painting, carpet cleaning, appliance tune-up, and ensuring adequate insulation. A property management company will be familiar with the rental prices in your area, or you can do your own research on Rent.com and other sites for home rentals. You'll also need to consider recurring costs in the lease: utilities (such as electricity, water, cable, internet, propane/ gas, oil), yard maintenance, laundry, etc.