Renting out your house in this market?

gingerjennyFebruary 26, 2013

We tried two years ago and had a bunch of showings but no offers. Then the year after we went with a different company at a lower price and didn't get many showings at all.

I was wondering if anyone had any experience just renting out their home.

We own about 25% of this house. We would like to buy a bigger house. We could do this without the equity in our current home.

I wonder how long you have to rent it out to consider it income? how long you have to rent it out to consider it a rental. How do banks and underrwriting look at this situation?

We have a family member I trust that is willing to rent it out and eventually purchase it when they have a large enough down payment.

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weedyacres

If you rent it out you must declare any and all rental income on your taxes and can also write off associated expenses (interest, repairs, depreciation).

I'm not sure what you mean by "how long you have to rent it out to consider it a rental." In whose eyes and for what purposes?

    Bookmark   February 26, 2013 at 9:54PM
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gingerjenny

In the eyes of underwriting. I think before you can count it as rental income for your next mortgage the renters have to been renting for 6 months. This was true for the mortgage company I used to work at but that was 10 years ago and I'm not in that field anymore.

    Bookmark   February 26, 2013 at 10:21PM
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kirkhall

I've heard 2 years of rental history. But, I am not sure if that is just for the big banks and strict lending... I think you best bet is to ask a likely lender.

    Bookmark   February 26, 2013 at 11:29PM
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GreenDesigns

Becoming a landlord to a family member is a recipe for disaster. Being a landlord for any reason is a lot more work and a lot less money than you think as well. You will be darn lucky if you can charge enough to cover the mortgage, insurance, taxes, required maintenance and repairs. If you have never done this, a rental management agency would be the best choice unless you want to be the one they call in the middle of the night when the toilet backs up. And then, you'll have to pay for all of that damage. And cleaning. And an opportunistic tenant might even sue you for temporary housing costs. Even if it were really their fault. You'd have to know enough to be able to handle all of that and defend your interests in a fair and legal manner.

Read all of the horror stores out there about being a landlord. And then put a rock bottom price on the house and sell it. Low price will always sell. And there go your headaches. Even if you have to bring money to the table. You will still be ahead of being an inexperienced landlord who loses money every month.

    Bookmark   February 27, 2013 at 7:52AM
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ncrealestateguy

The last time I poke to a lender regarding this question, which was last week, she told me that lenders want to see anywhere from 1 to 2 years worth of rental income, shown on your taxes, to be considered income. Otherwise, it is considered a liability.

    Bookmark   February 27, 2013 at 8:07AM
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gingerjenny

the rent, taxes and insurance is less than 500 a month.

    Bookmark   February 27, 2013 at 9:13PM
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Abraham_Helms

If you are a owner want to rent your home then first make candidates apply and do a background check on whoever applies! Check their job, however long they have been operating, confer with their last landholder etc...
Have a professional browse over your lease, or get a type for one that suits you. little loop holes will get you in bother. Check your state statutes on coming into and everything... i am going to place a useful web site in my sources.

Try and get semipermanent leases. it should simply be Maine, however I execrate finding new tenants, and being in a very faculty city I actually have to try and do it once a year for pretty much each single lodging.
By semipermanent I mean 6-months to a year. it is a realizable quantity of your time before finding new tenants. Month - Month leases tend to be tender.

    Bookmark   February 28, 2013 at 5:18AM
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LuAnn_in_PA

"it should simply be Maine, however I execrate finding new tenants"

Wha?

    Bookmark   February 28, 2013 at 8:59AM
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brickeyee

"We tried two years ago and had a bunch of showings but no offers. Then the year after we went with a different company at a lower price and didn't get many showings at all. "

Sounds like it has been overpriced the whole time.

"We own about 25% of this house"

Is this an odd way of describing that you have paid off 25% of the note? Or does the placed have more owners?

    Bookmark   February 28, 2013 at 11:45AM
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indywar

Renting out your property certainly can be done. But it is like taking on a part time job, especially depending on the part of town and potential tenants. Some are more work that others. There is a completely different mentality between renters and owners, and you have to have a certain personality to dealing with tenants (e.g. you won't put up with every excuse why the rent is late, again!). It also helps if you or your spouse are handy and can fix minor things that go wrong. As Abraham said, screen your renters extremely thoroughly and don't just accept anyone...find the right tenant not the first one. You don't want to have vacancies very often, so treat the tenants good, but firm. Finally, calculate what you pay for PITI and add a fudge factor (repairs/profit) to figure out the rent rate. Check around to see if houses are renting for that amount. That will really tell you if you should rent it. Check with your lender on the amount of time they require it rented before you can claim the rent as income in your mortgage application. At my credit union, it was 1 year. Good luck.

    Bookmark   March 21, 2013 at 5:39PM
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kabir

Its a very good renters market these days. Make sure you sign a two year lease and a $50 deductible on each repair call. it will save you from 90 percent of the minor repairs. I own more than 20 high end houses and these two things have helped me a lot.

    Bookmark   April 8, 2013 at 11:03PM
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oklahomarose

Kabir, could you elaborate on your approach? What is a minor repair? I also own some nice properties (duplexes). I agree that high-end is best. Some of the appliances were nearing the end of their lives when I purchased one property, for example. The fridge quit cooling. Would you consider that a minor repair? Would you apply the $50 deductible? I had legit washer/dryer and AC issues. The dryer quit drying and the AC unit wasn't cooling properly. These were understandable repairs (the age of the stuff was just coincidental with my purchase), but still annoying. After the first six months after the purchase, things mellowed out. I always try to crib good strategies from other property owners, so just wondered if you could elaborate. My properties are cute and desirable, and I have so far found that the income stream from landlording is well worth the effort. Thanks in advance for your feedback.

    Bookmark   April 9, 2013 at 12:12AM
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gpeach1

We rented out our home in 2011. The bank would not count it as income until it was rented for two consecutive years. And then they only count 85%.

    Bookmark   April 10, 2013 at 7:28PM
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marie_ndcal

Don't know about now, or what states do this but when we sold a house in CA 10 years ago, we had to pay a huge capital gains tax--over 12K after having the property only a few years and spending over 10K repairing after tenants. Never again!!!!

    Bookmark   April 10, 2013 at 10:06PM
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kabir

Oklahomarose,
Of course high end varies from location to location. Here in NE ohio I consider 3000 sq ft 2000 or later built with a three car garage as reasonably high end!
The $50 deductible is to keep a very few renters who call for everything like light bulb in the foyer, one burner quit working, microwave quit etc. AC and heating are genuine issues and I waive the deductible under those circumstances.
Also when you sing lease put a clause (movable kitchen appliances like fridge, microwave, range, also washer dryer are provided as a courtesy and is sole responsibility of the renter to maintain. This is only justifiable in single family homes, condos though.

    Bookmark   April 15, 2013 at 10:29PM
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