If you unexpectedly find yourself with a home to rent, you’re what some people call an accidental landlord. You never really planned on owning rental property, but maybe you’re facing a job transfer or you’ve recently inherited a piece of property in another city.
The Cautious Market Place: Food for Thought
Perhaps rigorous scrutiny from oversight committees and regulatory agencies like the Office of the Comptroller of the Currency are dampening private home sales in your area.
The real estate market has rebounded and continues to show promise for homeowners, but there’s reason to be cautious about the recovery – and the future. Some industry experts suggest that as the recovery period flattens, some mortgage lenders are reverting to practices seen before the housing market crash.
Digital Risk Analytics reports that almost two-thirds of states will reach or pass pre-crash home values in 2015. That’s great news for people who have been biding their time for prices to rise over the past seven years. However, it looks like some appraisers, under pressure from lenders, may be artificially inflating prices. Alterra Group, LLC, an advocacy group for real estate appraisers in Maryland, says 40% of appraisers polled reported increased pressure to over-value homes. That’s up 3% from last year.
According to the National Association of Realtors, the rate of contracts cancelled due to low appraisal values fell 7% between March 2012 and March 2014. It makes one wonder if this is a legitimate indicator that prices are returning to normal or evidence of inflated valuations.
Preparing for the Landlord Role
Regardless of what circumstances find you assuming the role of accidental landlord, there are at least five things you must consider before you sign the lease.
One: Know Your Prospects
Obtaining a thorough application is vitally important. Verify the information by using resident screening services or property management software that allows you to compare application details with background check data, criminal records and credit histories.
Two: Check Your Emotions
If you’re renting a home where you’ve lived for many years, set your emotions aside. Establishing rental rates based on personal experiences and intrinsic value may price your home out of reach for high-quality residents. Once you’ve decided on a resident, respect his or her privacy. It’s acceptable to periodically inspect the property, but give proper notice and outline expectations for access in the lease.
Three: Compare Rental Rates
Along with emotional pricing, unrealistic expectations can limit your options. Talk to a local real estate agent or invest in rent comparison tools to determine average rental rates in your area. You may have to adjust your expectation to avoid having a vacant property. Taxes, insurance and mortgage payments won’t stop just because your property is vacant.
Four: Understand Your Rights and Responsibilities
Every state has a unique set of landlord/resident laws. While you have some flexibility in lease design to assign responsibility for repairs and general maintenance, you’ll want to know which repairs you are legally responsible for and if there is a mandatory response time.
Five: Lease with Confidence
If you’re planning to sell the home, make sure your lease reflects your plans. It’s equally important to advise potential buyers of lease terms upfront. Hiring a real estate attorney to review your lease will ensure you cover all the bases in a legally binding document.
Becoming an accidental landlord has its privileges and drawbacks. The better prepared you are before you sign the lease the more likely it is that you and your resident will have a great experience. Who knows, you might like it so much you invest in other properties down the road to fund your retirement.