In today's market, many military families are stuck between a rock and a hard place — most homeowners are unable to sell their home or take a loss on it by selling below value. As a result, many military families are renting out their homes, and becoming accidental landlords.
If you find yourself in this situation, there are five things every new landlord should know before renting out your home:
1. Disconnect yourself emotionally from your home. This is essential if you've lived in your home for a very long time. Renting to a stranger can cause some emotional distress and you may find yourself too attached for the new tenants liking (and their privacy rights). When you make the decision to rent out your home, you need to approach it as if you're selling your home. The new tenant has a right to privacy, unless you feel something illegal is happening or you give proper notice and reason to enter the home.
2. Be sure you screen your tenants. This is so vital. There are "professional tenants" out there that do nothing but find landlords, usually those renting without a management company, that don't screen tenants. They will give a deposit, but never actually pay rent knowing you won't know what to do or how to kick them out. Use Landlord Protection Agency's (LPA) tenant screening worksheet to know what kind of questions to ask. Additionally, try to identify the red flags (for instance, are they not taking care of their car? Maybe they won't take care of your house either). Also, make sure you call the prospective tenant's references. Compare what they tell you to what is on their credit report, and make sure you do a credit and background check. Know who you're renting to, and don't be afraid to say no.3. Know the rules for the state. Every state varies greatly on how much they protect the tenant. You have to tailor your lease or rental agreement to that state's rules. You can easily find these on the LPA's website and then modify the lease agreement accordingly. Common changes are how much notice you must give for them to vacate, the maximum deposit you can collect, and notifications for entrance.
4. Price your rental. It's easy to say "okay, I have $2,000 in expenses, I'll charge $2,100"… but it doesn't work that way. The market may only bear a rental comp of $1,500. You have to make the decision if that $500/month is worth the long-term gain or whatever your initial reason was for holding rather than selling. You can check rental prices online through rentometer or Craigslist. Or you can ask a local Realtor® or call to find out what other landlords are asking for rent in the area. You may get more if you leave it furnished. Just be sure you price it right. All of those extra months on the market eat into that profit or break-even point. And, be sure you collect a sufficient deposit — one month's rent.
5. Know your responsibility. If something breaks, you have an obligation and lawful duty to fix it, and immediately, if it affects the quality of life or poses as hazard. But, if the tenant just wants something upgraded, that isn't a requirement. You have to walk the line between having your tenant stay long term because you're easy to work with and paying too much for little things. You can let the tenant make upgrades that they pay for if you wish. What's more, it's okay to incentivize them to stay longer. For instance, I give my tenants a $25 or $50 off rent coupon if they pay five days early and pay direct deposit. This saves me considerable time.
About the Author:
Dr. Danielle Babb (Dr. Dani) is an enthusiastic professor, speaker, consultant and author helping people achieve their passions and dreams through their work. She has devoted her career and life to engaging with people to make personal goals a reality. Dr. Dani is passionate about educating consumers on the economy, how to make money in real estate, how to make a living working from home, and how to have the life they want and deserve. Coming from very modest roots, she strongly believes in education as the foundation to every goal and dream we have becoming the life we live each day. She is also the founder of Teach Online Training Center, a center to help teachers learn to teach online high school or universities, at www.teachonlinetraining.com.
Are you interested in financial education as a possible career? If so, you should definitely look into the FINRA Foundation Military Spouse Accredited Financial Counselor® Fellowship. The Program The Military Spouse Fellowship program is a joint venture between AFCPE, the National Military Family Association (NMFA) and the FINRA Investor Education Foundation. The fellowship covers the course costs for [...]