As we head into PCS season, many military families will find themselves wondering whether they should rent out their home instead of selling it. While there are many things to consider, one of the first questions should be:
“Is this house going to be a good rental?”
There are two main parts to this question. The first part is financial, and the second part is the home itself. There are a few specific issues that are both financial and physical. See where your home stands.
Does The Math Work Out?
You need to do an in-depth analysis of the finances before turning your home into a rental. Will the projected rent cover all the expenses? Many people think that they’ll be OK if the rent covers the mortgage, but there’s so much more. Be sure you’ve factored in:
- Vacancies
- Advertising
- Property management (whether you do it yourself or hire someone)
- Ongoing services such as pest control, HVAC maintenance, and gutter cleaning
- Utilities between tenants
- Increased taxes and insurance (will depend on your specific situation)
- Umbrella liability insurance (if you’re not already carrying it)
- Repairs including appliance replacement
- Legal and tax preparation fees
- Turnover costs including regular painting, new flooring, etc.
- Mid-sized maintenance such as bathroom and kitchen updates
- Capital expenditures, which is a fancy way of saying “big, long term costs” like roofs and air conditioners
- Short- and long-term tax consequences
If you don’t know what any of these terms mean, or how to estimate the costs, you need to learn before you make a decision. And don’t be afraid to bring in help. A savvy investor, smart real estate agent, or experienced financial planner may be able to help you see the bigger picture. Just be careful that they don’t have their own agenda. Sometimes folks in real estate think that it’s always good to rent, even when it doesn’t make sense in that situation.
There may be good reasons to keep a house that costs you money each month. For example, maybe you intend to retire in that location or anticipate return orders. But you can’t make a good decision without facts. And no one wants to be surprised when their “break even” house ends up costing them tens of thousands of dollars, either a little bit every month or when they go to sell.
Photo from Canva
Location, Location, Location
You’ve probably heard the saying, “There are three things that matter in property: location, location, location.” A property’s location impacts its market value,and the property’s overall desirability. Digging deeper, market value is based on the local job market, rental vacancy rates, demographic trends, schools, nearby amenities, and public transportation.
If you own a family home, is it in a desirable school district? What’s the commute to the military installation(s)?
Also be sure you understand the laws in your location. To ensure compliance and avoid legal issues, you need to know about tenant rights, lease agreements, fair housing laws, and the eviction process. It’s worth checking with a real estate lawyer in your jurisdiction so you understand all the issues.
Is Your House a Hot Property?
Think hard about where your house falls in the local rental market. Every house is rentable, but some rent faster or for more rent. The most desirable properties are typically the ones that fit the needs of the local community.
What is the average size and quality of homes in your area? It’s going to be easier to rent a five-bedroom, executive-style home in a neighborhood of similar homes, but it will be harder if the surrounding neighborhood consists of smaller, 1940s concrete bungalows. Everyone wants a few upgraded touches, but no one wants to pay for all the upgrades in a neighborhood that doesn’t feel upgraded.
Hot properties will reduce vacancies and bring in higher rents. This will decrease your financial and emotional stress.
Photo from Canva
Keep It Simple
Those 1940s concrete bungalows have a characteristic that’s important in a rental property: they’re hard to break! Simple, solid construction means fewer things to go wrong.
Think about the features of your home. Does it have basic public utilities, or is there a well, septic tank, or propane fuel? Do you have any special features such as a swimming pool or solar panels? How many heating and air conditioning systems does your house have? Does your property require any special services, such as snow removal for a long driveway or extra pest control for a specific issue?
You need to make sure the property is easy for the tenant to use and will remain in good condition without heavy maintenance—especially if you’ll be living far away.
Not every property makes a good rental. It’s better to figure that out before embarking on a potentially expensive and frustrating process that ends poorly.
Consider all these things and read more here at MilitaryByOwner to be sure you’ve really thought about all the angles before you make a decision. Sometimes turning a home into a rental property makes a lot of sense, and sometimes you might want to pursue another option. Better to figure that out at the beginning of your journey.
Find even more help for your sell or rent decision with our free resource below.
