Is renting your family home out really a good idea? Think wisely

People love this idea. They get attached to their home and have a hard time parting ways when it comes time to upgrade. I would LOVE to say that renting out your home will always be a good option, but let's be real that’s just not the case. There are risks involved. You can make it work, but you need to be aware of these risks. There will be ups and down when you start renting out your home.

Are you ready to handle that?

Did you purchase your home with the intention of renting it out one day?

Be real with yourself here- you probably didn’t. Investment properties need to be looked at from many angles before sitting down at that closing table. This goes back to what I have said before; investors don’t make purchasing decisions based on emotion.

It just doesn’t work.

Period.

Did you make an emotional decision when buying your home? Think about that.

You don’t want to make just a few extra $100 off a rental property per month, if that. You want to start making good money.

Are you in a thriving area where rent is at a high demand?

No? Well you probably want to be.

There is a term in real estate called “rentability.” Look at the competition in the area in the rental market. Most of the time the answer to this question is probably going to be no.

When you bought your home you weren’t contemplating if this was the right business decision at that time. You fell in love with the crown molding or loved that the kitchen had an island that you could serve a small feast on. This house was YOU at that time. You weren’t crunching numbers trying to figure out the projected rental value. That’s fine and it worked for you then, but that is what it takes to find a good rental property.

If you are trying to do the math and the numbers don’t add up to a healthy profit then this probably isn’t the right property for that.

Do your research, know the area from a renters point of view, not just yours. You want your rental property to be at a high demand.

Are there features in this property that won’t increase the rent value?

Sure, most renters love marble countertops, but will they pay more for it? They might not.

Do you have a big yard? Renters actually look at that as an inconvenience. Think about it, who wants to maintain a yard that they don’t even own? They don’t want to deal with it. They would rather have a small patio to relax in the summertime. The list goes on and on.

The bottom line is with every fixture, appliance or feature you have in your home you need to ask yourself how much value this will bring my tenants. Having “the works” in this property is probably not going to pay off for you.

I get a lot of questions about smart home technology and how much value it adds to a rental property. My answer is close to none. Sure, it’s nice to be on a showing and brag a little bit about the Nest thermostat. Bottom line is a renter isn’t going to pay you an extra $200 a month for your Nest over a close contender that doesn’t have that. Think about all of this.

Do you have a team together that can be on call for maintenance and repairs?

Things break and they happen with no notice at all. Tenants aren’t going to be very forgiving when they have a leak coming from their ceiling or a caved in sink (true story). They want these things fixed in a timely manner, and due to tenant rights it is your responsibility to get it done. You want to put together a team that is both reliable and cost efficient.

When I say cost efficient I don’t mean the cheapest Joe Schmoe you can find. I mean the contractor who puts in good work and uses high quality materials to get the job done, while still not over charging you. It’s a hard mix to find, but if you plan to rent out properties long-term you have to have your team on speed dial.

Do you actually want to be a landlord?

This is the absolute first question I ask people when they throw this idea out at me. A lot of people think that the answer to this question is yes, until they actually start and have to stay committed. Stop right here.

Don’t make the same mistake if this isn’t something you are fully into. There are so many things that can go wrong when you have a rental property. Be prepared to do your homework. If you still have the drive to own rental property, but not the time you can always look into a property management option. A good property management company can make the world of a difference. You can focus on building your wealth, while they take care of the property.

Reality is that your home might not be the next rental cash cow. I always advise my clients to take a closer look at the numbers to prove that it truly makes sense. If you are holding onto the property just because you don’t want to forget what your first home looked like, it's time to move on and put the property up for sale.

If you feel like you still have what it takes to be the next successful landlord, you might want to consider starting with a brand new rental property. When looking for a “buy and hold” investment you can go into it with the clear goal that you are going to use this property solely as a long-term rental.

Get a plan together, learn about your options and make sure the property is the best fit for your long-term real estate investing goals.