Alternatives to Selling: Benefits to Becoming a Landlord
by
Ilona Bray, J.D.
Before you sell residential property, consider the potential benefits of becoming a landlord.
Thinking about selling that extra piece of residential real property? Think again. There may be more value to holding onto the property and renting it out than you realize. It’s worth evaluating such potential benefits as rental income, tax deductions, property appreciation, and being your own boss -- before you put out the "For Sale" sign.
Rental Income Cash Flow
Ideally, you want a rental to produce a positive annual cash flow. Here's how to determine the likelihood of achieving that.
Determine the likely rent you'll receive. To figure out whether this is possible, start by determining how much your property would rent for. Check local listings for properties of a similar size and quality to yours, ideally within the same neighborhood. You may need to call some landlords or visit rentals for details.
Factor in "vacancy" time. Don't count on receiving rental income for 12 months of every the year. Even if your property is in high demand, transition time between tenants can take a month or two.
Nationwide, the vacancy rate runs around 10%, but this varies widely between urban and rural rentals, different regions of the country, and even by neighborhood or type of house. Ask your local reference librarian or real estate broker about your area’s vacancy rates.
Subtract property expenses. Your rental income will not be pure profit. Factor in your projected property taxes, mortgage payments (if any), insurance, utilities, repair and maintenance costs, and if you don't wish to spend your own time dealing with tenants, property management fees (approximately 8% to 10% of the rental income).
Maintenance costs can be particularly high if your house is old or you’ve put off major repairs such as replacing the roof or furnace. As a landlord, you’ll be responsible for keeping the property in habitable condition.
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