If you are a homeowner, this question has undoubtedly crossed your mind at some point: Should I keep my home and rent it out, or should I sell and move on?
This topic has many considerations, but we thought this month’s column would be a great way to highlight the pros and cons of becoming a landlord and turning your home into a rental property. With rents increasing and many owners locked into historically low interest rates, the idea of having rent to help cover a mortgage has made this possible for many who never had intentions of being a landlord.
To focus on the San Pedro rental market specifically, over the last 180 days (based on local MLS stats), we have seen single-family homes rent out between $2,500 to $6,000 a month. Rental amounts will vary depending on location, size, features, condition, view, etc. Not included are fully furnished homes that possibly rent for more. So, as one can see, the financial benefit of renting your home becomes something to consider when evaluating what a home like yours may rent for.
So, this leads to the next question: Is your home a good fit for rental, and if so, does it require any major repairs or improvements before a tenant moves in? The general expectation is that you deliver a home to a functional tenant with all major systems being operational.
Are you prepared to be a landlord? Managing a property requires more than just collecting a rent check. The property owner’s role is to locate a qualified tenant, take maintenance requests, coordinate repairs (often at odd times), and communicate with the tenant as needed.
If you’re considering renting primarily for passive income, remember there are additional costs you should anticipate. As explained in an article from Bankrate:
Mortgage and Property Taxes: You still need to pay these expenses, even if the rent doesn’t cover all of it.
Insurance: Landlord insurance typically costs approximately 25 percent more than regular home insurance, and it’s necessary to cover damages and injuries. So be sure to get an updated quote on this before knowing what your new payment will be.
Maintenance and Repairs: Plan to spend nearly one percent of the home’s value annually (ballpark) or more if the house is older. Once a tenant moves out, painting and cleaning can be something that will need to be done before marketing the property again.
Finding a Tenant: This involves advertising costs and potentially paying for background checks. If you hire a real estate agent to help with this process, there will also be compensation to that individual.
Vacancies: If the property sits empty between tenants, you’ll lose rental income and be required to cover the cost of the mortgage until you find a new tenant. You should be able to cover three months of lost rent as a safety net during transitional times.
Management and HOA Fees: A property manager can assist in managing your property but typically charges approximately 10 percent of the rent. HOA fees are an additional cost, too, if applicable.
In closing, deciding how to proceed comes down to many factors and, ultimately, what you are comfortable with. Consulting with your accountant to determine tax benefits/liabilities is another essential element to consider. Also, contacting your local real estate agent is always recommended to get a professional opinion on all the considerations mentioned in this column.
If you have any questions or need more information, please contact us through our website at hhcoastal.com or email info@hhcoastal.com. spt
