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8 Questions to consider before renting out your home
Today, we are going to talk about eight things that you should consider before renting out your home. Now, this is of course referring to your primary residence or the home in which you’re now living. If you’re considering renting it out, I hope that this video is informative and helpful for you. We’ll dive right in here with number one. Why? Why do you want to rent out your home? Why do you want it as a rental? What are some of your goals? Is this a long-term investment for you, short-term? Do you know what to expect with it being a rental? Are you familiar with what you should be budgeting in terms of maintenance and what you can expect to get out of the rental?
Just exploring the why’s behind your motivation. Now, we love rental properties, and we think you should have investment properties, but not every investment property or every home and property makes a great rental. Exploring that a little bit and further answering some of these questions will be helpful. Number two, if I didn’t own this home today, would I buy it as a rental? If you saw this home on the market as an investment property, is this particular property one that you would say, “I want to buy that one”? That’s going to be a great investment property for you. There’s various factors to consider in answering that question, and feel free to reach out, we can help explore that with you.
If the answer to that is “no,” then this wouldn’t necessarily be your ideal investment property. Then unless you’re planning to move back into it, you may want to consider selling it and buying one or two other properties that you would say, “Yes, this is an ideal rental property.” Number three, do people want to live in this area? Is there movement? Is there demand for this area? Do the ideal tenant that we want to rent to live in this area? Ideal meaning, there’s a lot of them, it’s not a specific segmented demographic or market, but there’s a lot of movement in the area, which means we’re going to have less vacancy and we’re not going to have higher turnover and increased costs.
Number four, how much will my net cash flow be? Financially, does this property make sense? Do we understand what our costs are and do we understand what the rent is going to be and at the end of the day, what the cash flow will be? Is it going to be a cost center? If it is a cost center, maybe we need to reconsider it, or we have to look at the tax depreciation as well as the appreciation to make sure over the course of time, if we don’t need the cash flow today, at least it can be a long-term investment for us. Understanding the net cash flow will be really important. You can use some of the tools on our website. We have a rental pro forma that you can use to determine that for yourself.
Does this home and area have a history of appreciation? Really consider this. Are we investing in an area that appreciates well? If not, and there are some areas around that you can look at that don’t appreciate that great or they experience in some cases, negative appreciation or depreciation, right. We’ve got to look at that and see that in the long-term, three, five, 10, 20 years, that this is going to be a good investment. Number six, can I emotionally detach from the home? Some people who have lived in their home for years and years or even sometimes just a couple years, they are very emotionally attached to it.
When you rent out the home, it becomes a business. It becomes a rental property, an investment property and something where if something happens to it in terms of some damages or maybe the landscaping needs some work, is it going to be emotionally disturbing for you or really challenging for you to overcome? If so, I would sell the house and buy something that you’re not emotionally attached to, something that you can have be a little bit more simple possibly as an investment property. Number seven, how far away will it be? Now, this is something to consider in terms of management. If you’re going to be managing the home on your own, then you got to be pretty close to it.
If you do have hired out management and you’ve hired a professional management company, then you could probably be out of state, out of the country if necessary and things will still be taken care of for you. That’s just something to make sure you consider is where you’re going to be and what your management strategy is for it. Finally, number eight, what are the tax implications? Talk to your accountant and just make sure that you understand from your situation and your financial situation what the tax advantages are, what some of the implications will be for you. These are just a few things, eight things to consider before renting out your home. I hope this has been helpful. Feel free to reach out to our team if you have any questions or if you’d like us to help you in answering some of these questions.