Image: House for rent
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Becoming a landlord might sound like a great idea but you have to have both time and the inclination — not to mention, the right temperament.
By
updated 7/13/2011 7:51:21 AM ET 2011-07-13T11:51:21

As home values continue to tank, and cautious buyers continue to sit on the sidelines, a growing number of financially pinched homeowners — reluctant to sell their home at a loss — are choosing instead to rent their properties. Others are becoming accidental landlords because of a job opportunity that requires them to move before they can sell (after all, given the glut of properties on the market, it can take years to unload a home). Is becoming a landlord for you? Some considerations:

Crunch the numbers
Calculate your carrying costs: your mortgage payments, taxes and insurance. Compare that number to how much income your are expecting to receive from renting out your place. Would you come out ahead? Ideally, the rent should be at least 125 percent of your mortgage payments to make it a sensible option.

Price it right
Just as you would look at comps if you were trying to sell, take a look at what comparable homes (comparable in terms of size, location, amenities, etc.) are going for. This is where Zillow’s Rent Zestimates can come in handy; you’ll find estimated rent prices on nearly 100 million U.S homes. And don’t get greedy! Overpricing will result in your home sitting vacant, and vacancy is costly.

Find the right tenant
Finding a solid, reliable tenant is nothing short of challenging, particularly since the economic downturn has left some responsible people with blemished credit reports. You want someone who is gainfully employed (Have they been at their job at least a few years?), has a good reputation (Have they moved around from one place to the next? Ever been evicted?), pays their bills on time, and has a reliable income stream. Never mind your gut instinct: you really have to treat the entire process like a job interview, getting all the relevant information in writing — from former landlord information, personal and professional references, and more.

Know the tax consequences
While you probably know that rental income is taxable (Rent for 15 days or more, and you must report this income on Schedule E), and that there are numerous deductions on expenses and depreciation, here’s something you might not know: If you rent your place out for three years or more and then sell, you forfeit a valuable tax break ($500,000 in capital gains tax-free to married couples filing jointly; $250,000 in tax-free gains for singles). Rent your house for a year or two and you’ll still be eligible for this exemption, providing you’ve lived there — in your primary residence — for at least two of the past five years.

Don’t underestimate your responsibilities
Becoming a landlord might sound like a great idea but you have to have both time and the inclination (not to mention, the right temperament). In other words: you have to have it in you! That means being prepared to handle everything from complaints, maintenance issues, and even legal issues such as eviction (which could easily cost you several thousand dollars). Not for you? A property management company will happily handle these responsibilities on your behalf, but it’ll cost you about 10 percent to 15 percent of the monthly rent.

Change your insurance
You’ll need a landlord’s policy. This insurance covers the house and could reimburse you for lost rental income due to building damage. The policy — which can cost about 25 percent more than a standard homeowner’s policy — can also reimburse legal fees and liability protection if a tenant were to become injured in the home.

Plan for unplanned expenses
Your place might need a fresh coat of paint; the tenant might want a new screen door; the roof might need to be repaired. All those things you may have put off as a homeowner you will need to take care of as a landlord. And you’ll need to do it in a timely manner. On the flip side, your tenant may trash your place, costing you hundreds, if not thousands of dollars in repair costs.

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Photos: Barbara Corcoran on what home buyers can get for $300,000 or less

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  1. What home buyers can get for $300,000 or less

    Each week, TODAY real estate expert Barbara Corcoran looks around the U.S. to see what homebuyers can get for their money.

    This week’s search goes from the home of the Rock and Roll Hall of Fame (Cleveland, Ohio) to America’s Live Music Capital (Austin, Texas) in search of truly unique properties you can get the keys to for $300,000 or less.

    Published July 8, 2011. () Back to slideshow navigation
  2. Cleveland, Ohio

    $299,000

    5 bedrooms, 3.5 baths

    See the next slide for the interior. () Back to slideshow navigation
  3. Cleveland, Ohio

    Cleveland is home to the rock ‘n Roll Hall of Fame! This gray five-bedroom home is over 2,700 square feet, with a nice front lawn and mature trees. The formal living room has shuttered windows, French doors and a beautiful fireplace. The dining room has hardwood floors and extra-wide crown molding and baseboards. The kitchen has a breakfast bar, exposed brick and a bay window over the sink. There’s a pretty window-filled sun room. There’s a big deck out back with a pergola, gazebo and built-in gas grill.

    View the listing. () Back to slideshow navigation
  4. Marrero, Louisiana

    $279,000

    4 bedrooms, 3 baths

    See the next slide for the interior. () Back to slideshow navigation
  5. Marrero, Louisiana

    This New Orleans suburb has annual crawfish and gumbo festivals and is near the Jean Lafitte National Park. This stately home has leaded front doors and meticulous landscaping. The double-height entryway is tiled. There’s a formal dining room with extra-long windows, a chair rail and crown molding. The family room has solid wood floors, big sunny windows and a formal fireplace. The cheerful yellow kitchen has a granite-topped island, granite counters and a custom marble backsplash. There’s a bay-windowed breakfast nook off the kitchen. The pretty backyard has a covered patio and plenty of lawn. Property taxes are a meager $1,400 a year!

    View the listing. () Back to slideshow navigation
  6. Saratoga Springs, Utah

    $284,999

    6 bedrooms, 2.5 baths

    See the next slide for the interior. () Back to slideshow navigation
  7. Saratoga Springs, Utah

    Set between Provo and Salt Lake City, Saratoga Springs is a foothill community overlooking Utah Lake. This six-bedroom custom house is over 4,000 square feet. It sits on a quiet cul de sac and has a front porch covered with flowering vines. The formal entryway has a dramatic marble floor. The living room has wood floors and the formal dining room is flooded with light. There’s a great room with new carpeting and fireplace with a wood and marble mantel. The sunny kitchen is all blonde wood with granite counters. There are stunning mountain views and the mature landscaping includes flowering bushes and fruit and nut trees.

    View the listing. () Back to slideshow navigation
  8. Santa Fe, New Mexico

    $285,000

    2 bedrooms, 2 baths

    See the next slide for the interior. () Back to slideshow navigation
  9. Santa Fe, New Mexico

    This community just south of Santa Fe is designed as a collection of villages, each with its own plaza, and all bordered by preserved open space. This southwestern style home sits on a corner lot with adobe walls and a carved wooden entry door. It has a gated courtyard with a covered porch and colorful plantings. There’s a light and bright open floor plan, tile and wood floors and vigas, which are those peeled tree trunk ceiling beams. The living room has dark wood floors and a traditional beehive fireplace. The open dining room has a pass-through to the kitchen. The kitchen is tiled and full of windows, with a built-in desk and large breakfast area. There’s a bonus room currently being used as an office.

    View the listing. () Back to slideshow navigation
  10. Austin, Texas

    $285,000

    3 bedrooms, 3 baths

    See the next slide for the interior. () Back to slideshow navigation
  11. Austin, Texas

    This community is situated between Lake Austin and Lake Travis and is perfect for those who love the “lake lifestyle.” You can pull your boat up to one of the local 5-star restaurants and enjoy live music and great food on the water! This tile-roofed, stucco home is landscaped with bougainvillea and other native plants. The interior has 14-foot ceilings, arched doorways and herringbone tile floors. The kitchen is a cook’s dream, with granite counters, a tile backsplash, olive stained wood cabinets and a big arched window over the sink. There’s a huge and elaborate covered patio with a fireplace. There are even guest quarters with a private bath and separate access!

    View the listing. () Back to slideshow navigation
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Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 4.66%
$30K home equity loan FICO 4.97%
$75K home equity loan FICO 4.34%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 11.22%
11.09%
Cash Back Cards 16.44%
16.42%
Rewards Cards 16.09%
16.04%
Source: Bankrate.com