Becoming a Landlord is Serious Business

Dear Sue,

It looks like the market is starting to rebound. I have read recent stories about multiple offers on bank owned homes. I also heard that February home sales were up!

I want to buy a new home while the prices are still down. I think that there are still a lot of foreclosed homes that need to be snapped up before my home sells.

What do you think of me buying a new home, moving into it and then renting my old house out while it’s on the market?

What are the things that I need to consider?

Landlord Larry

Dear Larry,

Renting is generally better than leaving your home vacant. Rental income can off set your expenses and a home that is lived in is less likely to be vandalized.

Becoming a landlord is serious business. If you don’t have landlord experience, I recommend paying for the services of a reputable property management company.

Property managers may be an additional expense but they are set up to do thorough tenant screening and selection. Good tenant selection is vital. A bad tenant can be costly and throw a huge monkey wrench into your plan.

Your property manager can select a tenant that understands that your home is for sale. A free month’s rent or below market rent is an often used incentive for a cooperative tenant.

Property managers also have an array of cleaners, painters, plumbers, electricians and general all around property maintenance personnel. Let them handle the early morning “Fix-it” calls.

Insurance is a consideration. You, the landlord will have a significantly lower premium because you will not be insuring the contents. The tenant should be required to have their own insurance policy with extended liability coverage. Some insurance companies will not fully insure a vacant home. In any case check it out with your insurance agent.

If your home takes longer than three years to sell, you may lose your $500,000 capital gains tax exclusion. To qualify, you must live in your personal residence two out of the last five years. If you get close to losing your exemption, you might want to cut your price and bail. Your accountant can help you with that decision.

If you decide that renting is not for you, consider professional staging and pricing your home for current market conditions. It will be a matter of good Home $$s and Sense.