rent minimum

behaviorkeltonSeptember 2, 2007

I'm considering the rental of a house.

What is the minimum rent one can charge that justifies the idea of renting a home?

Is charging enough to cover the mortgage enough?

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Not sure what you're after with the "minimum", but covering the mortgage is just the beginning. Your costs will include the mortgage; property taxes (likely higher on a property you don't live in); special tax or homeowner-association assessments; repairs; regular maintenance (including lawn mowing, snow clearing, plugged drains, furnace checkups, etc.); capital accumulation (for big spends like roof replacement or major repairs); and some money set aside for advertising the property, the expenses of filing paperwork or maintaining occupancy certification, and even months in which you may not have a tenant covering the mortgage.

So, no, charging enough to cover the mortgage is nowhere near enough. Now, what the market will bear for rental of your property is a different matter. But the costs are much less variable.

    Bookmark   September 2, 2007 at 11:09PM
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ditto what steve said.

    Bookmark   September 3, 2007 at 12:25AM
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You may not be able to charge what you feel is necessary in order to cover all of the ongoing costs, or potential ones (but fairly certain to be needed, sooner or later) as referred to above.

Some people bought rental housing, knowing that the current rental income would cover the mortgage, taxes, insurance, etc. but leave little over for investment toward the day when the tenant would call at 2 a.m. complaining of a plugged sewer connection, repair/replacement of furnace, roof, etc. or other substantial maintenance costs.

But they were counting on the price of housing in their area growing so quickly that, after not too long a period, it would more than cover such extra costs that might appear.

In many areas of the country, the price of houses has been dropping, rather than rising, as many had purchased a home with nil or nearly nil down, and an interest rate of 1.5% or something, when regular mortgage rates were 4.5% or nearly that, and they signed a contract where the lender could renegotiate the mortgage after a year or two.

At that time, they were required to cover the real rate of mortgage interest ... and they found that, in the period since they'd signed the first mortgage, the extra 3.0% interest rate to pay the real rate in the interim had been added to the principal ... so that now they owed more than they had on the original signing.

Not being able to cover the higher rate of interest, or pay some of the principal, they had to leave the contract.

It would be well in such a circumstance for them to sell the home before the due date, even if they had to take a loss, since many people were in the same boat, resulting in many houses being for sale. Or possibly because there had been many layoffs locally and people were worried about the security of their employment, thus refusing to buy a home, with the large responsibility of paying for a mortgage.

If they simply walked away, the lender would have the expenses of repossession/foreclosure, plus preparing the bulding for sale, plus costs related to the sale, which often turn out to be rather higher than if the individual who was the earlier owner sold the home themselves.

Then the former owner would be presented with a bill for the difference between the net proceeds of the sale, reduced by the costs involved, and the amount that had been owing on the earlier mortgage. Which would almost certainly be much larger than had they sold the property themselves, taking a (likely much smaller) loss.

Not a pleasant experience, either way.

House prices, like stock, mutual fund, etc. prices, don't always go up.

Sometimes there are high costs involved with stretchig one's financial budget as tight as a violin string: sometimes one gets away with it, but sometimes not.

ole joyful

    Bookmark   September 3, 2007 at 6:45AM
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Thanks. Here's what I was considering.

I like my home, but have been considering buying another home that has some features missing in this one. Given this, and given the possibility that "it's a good time to be a buyer", I was thinking of taking advantage.
Here is what I was thinking.
1. Buy another house while prices are suppressed... sort of like buying more stocks when they are low.
2. Instead of taking a loss on my house, I would rent until selling conditions improved.
3. I am hearing that under the current market, rentals will become more in demand thus making it easier to find renters and able to charge enough to cover expenses.

Here are the disadvantages I see:
1. Who wants to be a landlord?...the hassles. (Although, I must say that in my entire life as a renter, my landlord simply received a regular check with no issues.)
2. I'm not certain, but from what I am hearing, the real estate market in my area hasn't really depreciated although it has slowed. I believe the news recently reported that homes are selling at prices "only 1.2% more than last year".
I haven't put myself into the hunt for a new home yet, so I'm not sure about the exact market conditions.
Knoxville, Tn never experienced the real estate explosion of the super hot markets... so there may not be any great deals to be had in this area.

So that's why I asked the question.

Perhaps I could just sell my home in the spring without expecting to make any real profit, and find a place more suitable.

    Bookmark   September 3, 2007 at 8:35AM
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We were in your same position in 2001, we kept our old house as a rental and purchased another home for ourselves. It was a good market to buy but we wouldn't have got 'enough' for our old house to make it a good time to sell. We had experience as landlords with one other rental property so we knew what we were getting into.
We were able to charge a rent that equaled our regular expenses on the home-PITI, utilities, and a *small* amount to cover 'miscellaneous'. As we had lived in the home and it was in excellent repair we knew that major problems would be unlikely (though always possible) and my DH is able to handle almost all repairs. We refinanced the home in '03 to a lower rate which allowed us to have a little more cash flow on the home. We were as careful as we could be and rented to 3 sets of tenants over 6 1/2 years. We had the usual annoyances with tenants but nothing major. If something happened that would have required major $ to fix or if it went vacant, we would have had to tap into our savings, luckily that was not the case. When we left our home (in 2001) it would have sold for $145-155k. We looked at selling 2 years ago...$200k...we just sold it this summer and it went for $244k, we put about $2k into it to make it ready for sale. In the interim having the rental was a tax benefit. Yes it was a headache and work at times, we managed it ourselves, cleaned it ourselves etc. For us it was the right thing to do, you need to weigh the issues for yourself. One thing we would do differently? We would have sold it when it still 'counted' as a personal resdidence. We could have then bought a new rental with a basis based on market value in '03 instead of '97 when we originally purchased to take some of the equity without capital gains. Good Luck!

    Bookmark   September 3, 2007 at 11:30AM
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So what does 'DH' mean? I assume it means husband or wife, but what does DH' specifically stand for?

    Bookmark   September 3, 2007 at 12:07PM
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Usually "Dear Husband" (sometimes "Dear Heaven-sent Husband" ... but that should be "DHH" ... I think).

ole joyful

    Bookmark   September 3, 2007 at 12:48PM
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