Taking On a Tenant to Ease the Burden
Saturday, February 28, 2009
Alan Rickert didn't set out to be a landlord. When he bought a one-bedroom condominium in Shirlington in 2005, he was sure rising prices would guarantee that he could sell in a pinch.
But as prices continue to fall, many homeowners are finding themselves in Rickert's position -- ready to move but trapped by a hostile marketplace. A lot of these homeowners are turning to the rental market to wait out the downturn.
Would-be landlords need to stop thinking of their property as a home and start thinking of it as a business, real estate experts said. That starts with calculating the monthly cost of keeping the home, including mortgage and taxes, and figuring out how much would be covered by a renter. The tenant-landlord relationship is governed by a host of state and local regulations, and violations can come with hefty penalties.
"Landlording is not for everybody," said Jay Seville, an agent who runs the Web site Just New Listings. "I tell clients they might want to consider having a management company handle it. It's not something to jump into."
Rickert decided to become a landlord after he and his new wife outgrew his condo and decided to upgrade to a townhouse. But after home values dropped 15 percent in his neighborhood, Rickert said, he realized that selling would mean losing money.
"In this market, it could take many years to go back to where it was in summer of 2005," he said. "We're keeping it until it regains and gains on its value."
He listed the condo for rent on Craigslist and immediately received several responses. The mortgage broker who was financing his new home helped screen potential renters. "I was extremely nervous I was asking too much. I decided to just wing it," Rickert said.
The first applicants were eliminated after a credit check. The next potential tenant backed out at the last minute. The third applicant turned out to be perfect, Rickert said. "We really, really lucked out with our tenant. She pays on time and no complaints. We couldn't have asked for a better tenant," he said.
Here are a few key issues potential landlords must consider:
-- While deciding whether the rental market might be a safe place to wait out the housing slump, homeowners need to research local rental prices and determine how much they can charge. Use that figure to determine how much a potential tenant will be able to offset the cost of keeping the property, real estate experts said. That calculation should include some cushion for upgrading the home to attract a tenant or the cost of the paying the mortgage for as long as it takes to find a renter.
In some cases, the rent owners can collect will not be enough to cover all of their costs. But they should also take into consideration the tax benefits of a rental property, said Veena Kutler, a financial planner with Garnet Group in Bethesda. For example, some business expenses, such as maintenance costs, can be deducted on the owner's taxes, she said. The homeowner can also write off a portion of the value of an investment property, known as depreciation, Kutler said.