If you have relocated or moved to a new home, and your old home hasn’t sold, renting it may be a good option. A rental property can provide you with extra income to make your mortgage payments on your new home and reduce moving expenses.
Before you decide to rent, you should research rental homes in your area and evaluate a fair market rental price. If you think that renting is a good investment option, it’s best to work with a property management company or real estate agent that can take care of rental inquiries, showing the house, lease agreements and rental payments. They can also handle ongoing expenses like landscaping, home repairs and insurance payments. Working with a professional will ensure that you have a financial expert witness if problems arise with your rental tenants. Here are tips to help you determine if renting your home is a good investment:
Calculate Your Profit
Once you determine a fair rental price, you need to calculate your profit. Figure the yearly rent that you will receive from the rental, then deduct your yearly expenses including mortgage payments, property taxes, insurance costs, utilities, repairs, and property management fees. It’s important to also consider the amount of time the home may be vacant. According to real estate market studies, the average national rental vacancy is around 10 percent, so deduct one or two months of rent for a more accurate calculation of your profit.
Advantages of Renting
Rental income can cover some or all of the mortgage payments on your old home, so you don’t have to come up with an additional mortgage payment each month. If your monthly payments are low, it’s possible to make a profit that can help with monthly mortgage payments or expenses on your new home.
With a rental, you can continue to build equity in the home at the expense of the renter. If you have been paying on your old mortgage for a long time, more of the rental income will go directly to the principal instead of interest, so each payment will lower your mortgage obligation.
As a landlord, you gain tax advantages. In addition to the allowed yearly deductions for mortgage interest and taxes, you can deduct the cost of home repairs, property management fees, and travel expenses that are related to the rental property. These extra deductions can improve your financial situation.