You’ve decided to move. Should you rent our your condo? Certainly, the idea of being a part-time landlord has its appeal. But is it the right path for you? Let’s take a look.
You’ll Continue Building Equity on Your Home
Even if you rent out your condo for roughly what it costs you to keep it, a portion of that is going towards your equity. In other words, as you rent, you’re getting closer to completely owning your condo. That’s money in your pocket.
The Possibility of Profits
If the rental rate has gone up since you bought, you may be able to rent out your place for a lot more than it costs you to keep it. In this case, you’re not just building equity, but raking in substantial additional income as you do it.
Hold on to a Very Favorable Interest Rate
If you bought any time in the last five years, you’re getting a spectacular interest rate on your mortgage. As interest rates creep up – which they’re expected to do – you’ll be coming out ahead by having a mortgage rate that may end up being lower than inflation.
Keep Your Options Open
Maybe you’re only moving temporarily, or otherwise think you might have reason to move back into your condo. Renting it out is the perfect way to keep that possibility alive.
Ability to Time the Market
Maybe you’d have to sell at a loss right now. Or, you think the neighborhood’s property values will spike in the coming years. Either way, you’d prefer to sell when the market’s more in your favor. Renting out in the meantime is a way to do that.
Remember the Total Expenses
Association Dues, Taxes, Special Assessments, Insurance. These fees can only go up, and none of the money you put towards them goes towards equity. Not necessarily a problem, but do factor them into the total cost of renting out your unit.
Condo Association Headaches
Some associations don’t allow people to rent out their units. Or, they have arcane rules related to the process. By keeping your unit, you’ll need to continue to be involved in your condo association.
Where Will You Get a Down Payment for a New Place?
Most people use the sale of their first place to fund the down payment on their second place. Do you have the spare cash to swing it without the proceeds from a major sale? Or do you have enough equity in your old place to refinance for extra cash?
Finding (Good) Tenants Can Be Tricky
Have you ever tried to find a tenant? Finding someone who’s reliable, reasonably neat and quiet, and wants to live in your unit long-term isn’t always easy. Until you find that tenant, you’ll be paying for an empty unit all by yourself.
Two Mortgages Equal More Financial Pressure
Ideally, of course, you’ll be renting out your condo pronto, for more than you pay to keep it. But, that’s ideally. Keep in mind that your monthly financial obligations will be steep, even if you have plenty to cover the expenses right now. Would you have the stomach (and savings) to bear a tenant backing out of their lease? What about if you lose your job shortly thereafter? With great potential rewards also comes risk.
Being a Landlord Can Be A Lot of Work
It’s not just cashing checks. It’s showing up to fix leaky faucets, replacing broken stoves and dealing with insulation problems. It’s fielding calls from your tenant whenever they come, doing a deep clean and repainting the place every time a new tenant moves in, and collecting on your rent, should you tenant not pay in a timely fashion. Especially if you’re not planning on living near the unit, these things can take a lot of time and effort.
Taxes and Paperwork
Generally speaking, rental units are treated very favorably tax-wise. But, for those who dislike paperwork, there’s a decent amount of it. And not just for the taxman. You’ll need to conduct background checks, file away leases for future reference, document received payments and keep track of repair expenses.
The Unit Will Deteriorate
Conventional wisdom says that rental units are treated a bit more roughly than owned units. In other words, your nice new paint job and refinished floors likely won’t last long. It’s just the normal wear-and-tear of someone living there, but it’s a capital loss. When you eventually do go to sell, you might need to invest in a modest remodel before putting it on the market.
First, the finances need to make sense. But, if they do, then the decision is as much about personality as it is about money.
- Do you have the energy to take on what amounts to a part-time second job?
- Do you have the nerves to deal with a total stranger living in one of your major financial investments?
If you answered yes to these two questions, renting out your unit might be for you.