Relocating? 5 Questions to Ask Before Renting Out Your Home

Are you moving out of town? Or even across town to a house that better suites your family? Now you have the tough decision of whether to rent your home out or sell it. What would you gain financially from these options?

"Relocating homeowners need to shift their thinking and recognize that the property is no longer their home; it is an investment," says Joseph Himali, principal broker of Best Address Real Estate in Washington, D.C. "The decision to sell or rent should depend on whether keeping the home is the best use of their investment dollars."

Michele Lerner of Bankrate.com put together a list of five questions to ask when deciding whether to sell a property or rent it out.

1. How much equity do you have?

Homeowners with significant equity should sell, unless their home is a desirable rental and they want to take on the challenges of being a landlord, says Diane Rule-Enos, a registered financial consultant with The Patriot Financial Group. "Even if you have to sell at a price that is lower than what it was worth a few years ago, if you have equity, it is a much less risky choice to sell, the higher-risk decision is to deal with renters who may not pay the rent and who may damage the property."

Rob Irwin, a real-estate expert takes the opposite view. "Homeowners with significant equity usually have lower mortgage payments, so they are more likely to have positive cash flow when renting the property."

2. What's the local market prognosis?

Irwin recommends that homeowners ask a real-estate agent about local market trends and research home values online. "Homeowners should make the calculation to determine how long it will take to reach the break even point in terms of gaining value to make a profitable sale," Irwin says.

3. What's the state of the rental market?

Irwin recommends consulting with a real-estate agent who specializes in rentals to estimate rental rates and how long it will take to find a qualified renter. Homeowners should know that rent is based on market rates, not the amount they need to cover their mortgage payments. "Homeowners who choose to rent need to be financially prepared for the possibility of negative cash flow, vacancies and the chance that the renters will stop paying the rent," Rule-Enos says.

4. What are the costs of owning investment property?

Owners who become investors must continue paying principal and interest on their mortgage, property taxes, homeowners insurance, homeowners association fees, and maintenance and repair costs. Many of these costs are tax-deductible for landlords. Owning a home as an investment property changes owners' tax liability in ways that may help or hurt them.

5. Are you ready to be a landlord?

The emotional cost of being a landlord includes handling tenant complaints, maintenance problems and even the possibility of eviction. The application process should include a background check by the landlord, says Irwin.

So there is a lot to consider when weighing out your options. For the full article, click Here