Thinking About Becoming a Landlord?
When the time comes to decide whether to sell your home or become a landlord by leasing it to tenants, it’s also the best time to think about the time and money you may spend.
Your first thought may be to calculate the monthly rent you’ll be able to collect. Researching comparable rental properties will help you determine typical monthly rents in your area. It’s always easy to focus on potential income because it adds to our bottom line.
And your second thought might be doing a little bit of arithmetic, meaning, you subtract your monthly mortgage payment from the monthly rental income to find out how much is left. That’s a very important number, but it’s not the final math problem you need to do.
Calculating Monthly Expenses on Your Rental House
Calculating your property taxes and property insurance on a monthly basis comes next. Subtract those from the balance after your mortgage payment comes out of the monthly rental income.
Now the excitement of being a landlord may be fading a bit. But, don’t stop now. Prepare to do a little more arithmetic before you make your decision.
Professional investors who buy and sell rental properties know the average costs involved in keeping their properties in good repair, especially when tenants move out. Calling a plumber when the kitchen faucet starts leaking means you’ll be paying that plumber, usually the same day the job is completed. Plumbers and electricians take credit cards over the phone, so that’s most likely how you will pay.
An occasional plumbing leak is to be expected, but sometimes one leak leads to another, under the sink or under the house. Undetected plumbing problems can easily cost more than all the profit you expect to make in one year’s total rental income.
Maybe you’re a do-it-yourself weekend plumber and feel confident about repairing the leaking faucet on your own. Do your city codes allow an unlicensed plumber to make repairs in a home occupied by tenants? This is something you may not have considered the day you were deciding whether to sell your house or to lease it, and it’s a common requirement in most municipal codes.
City Codes Protect Tenants
Even though you have the skills, unless you’re living in your home you may not have the legal right to do your own plumbing and electrical work. Tenant protections are built into municipal and state codes.
Now go back to the calculations and plug in at least 10% of each monthly payment as an estimate for property maintenance costs. That’s a minimum percentage, but it will work for now.
Take a good, hard look at your projected bottom line. Is that number large enough to take on the financial responsibility of tenants? Is it large enough to cover your legal expenses if you must sue them to collect their rent or to evict them?
This exercise is the best way to make an informed decision about selling your home compared to becoming a landlord instead. It’s easy to see why most homeowners decide to sell. Call (405) 521-1807 or email [email protected] to sell your home quickly and easily, with no real estate commission or fees.