Owning more than one house used to be a sign of wealth. But it can also be a sign of hard times, as people who've either moved to another house or acquired a second home through inheritance or divorce find they can't sell the extra house for a reasonable amount -- if at all.
Below are eight questions to help you decide whether it makes financial and practical sense to rent out your house. We'll focus on whether your house will appeal to the tenants you want -- in particular, whether you'll find tenants willing to pay a high enough rental to cover your costs.
Is the property located in an area that's attractive to tenants? For example, is it in a desirable neighborhood, reasonably close to places of work and recreation, and accessible by public transportation? If it's in a university town, how close is it to the campus? The higher its "tenant appeal," the more likely it is to stay rented for the long term and command a reasonably high rental amount.
- Is the house too high-end to attract a broad pool of tenants?& If your house is a luxury home in a nice neighborhood, it may actually be more difficult to rent at a reasonable price than others. People who can afford the monthly rent are likely to take advantage of low real estate prices and buy a home.
- If the house has two or more bedrooms, is it suitable for families with children? A house of that size is likely to attract families, who will be looking for a family-friendly layout and ideally a yard or outdoor play space, plus a good school district.
- Is the property in good condition? If it's gotten rundown over the years, you may need to do some upgrading in order to make it both appealing to tenants and compliant with state and local laws on property habitability.
- Does the property have other special features that might appeal to tenants? For example, tenants might be drawn to a finished garage that could be used for art studio space or to run a small business such as acupuncture or therapeutic massage (assuming you approve, of course). If you allow pets, a fenced-in yard will be a real plus.
- Will the rental income be enough to cover your costs? Market supply and demand essentially decide how much you can charge in rent. For many landlords, that's not enough to cover monthly carrying costs such as the mortgage, repairs, insurance, and upkeep. That doesn't mean giving up on the idea of renting, but it does require taking a careful look at how long you can hang onto the property while losing money, and comparing that to how much you stand to gain when property values go up.
- Will the property present maintenance challenges for you? For example, if it's located many miles from your home and you'll have to travel to check on repair needs or interview prospective new tenants, that makes renting it out less attractive. You can hire a property management company for these day-to-day tasks, but of course that will cut into your profits (or add to your losses).
- Is the house in a planned community that restricts renting? Condominiums or homes in planned developments must abide by community rules, administered through a homeowners' association. In many cases, those rules restrict the number of properties within the community that can be rented. Check on whether yours has reached its limits, and on whether any other restrictions will make it difficult to rent the place.
For more on the issues above, and on taking first steps to prepare your house for renting, see First-Time Landlord: Your Guide to Renting Out a Single-Family Home, by Janet Portman, Marcia Stewart, and Michael Molinski.