Dan Krell, Realtor®
Reluctant home sellers turn to renting their homes.
Handing over the keys of your most expensive investment to another person is not how you think you would have moved on with your life. But, because the housing market threw a wrench in many peoples’ plans, many home owners who could not sell their homes decided to rent it instead. Unfortunately, some didn’t know what to expect from their tenants, while others didn’t realize that they had obligations as a landlord. And as you might imagine some rental arrangements did not turn out so well.
Although the home owner turned landlord may feel kinship to the hard core real estate investor, there are some differences. Unlike the genuine real estate investor, most people are not accustomed to leaving their home in another’s care (often the person is a total stranger). Another difference is that the home owner may decide to rent their home to ride out the housing market, while the hard core investor has made a commitment to the real estate investment as a vehicle for accumulating wealth; many investors will hold property for many years looking forward to the future payoff of appreciation when the property is sold.
Of course there is a commonality too; the desire for positive cash flow. The positive cash flow is the perpetual incoming of cash so the mortgages and other real estate related expenses (such as property taxes, HOA/condo dues, maintenance, insurance, etc.) can be paid. Although a positive cash flow is a good thing, some are content just to break even and have no net proceeds from the rental. Expenses can add up quickly and turn the rental into a negative cash flow situation (when the rent does not cover all the home expenses); which can became the source of serious financial issues.
So, you decided to rent your home (or maybe you were talked into it) so you could move on with your life, what now? Finding tenants and maintaining the property can be an issue for the novice and experienced alike. Although seasoned real estate investors have systems in place for various aspects of their business (from finding tenants to collecting rent); you might consider hiring a licensed professional to manage your rental property. For a fee, professional property managers take care of your rental property: which can include finding tenants, collect rents, and maintain the property.
And since rental agreements can be rather legally complex, consulting with an attorney prior to entering into the agreement would be prudent; as well as consulting with an attorney when issues arise between you and your tenant.
Consider getting additional information about rental properties before embarking on your new journey. Some municipalities and local governments offer resources to inform you of your obligations and provide additional resources. For example, the local government of Montgomery County MD offers resources for landlords and tenants. Besides the “Commission on Landlord – Tenant Affairs,” which hears landlord – tenant disputes; other resources are available including a description of “ordinary wear and tear,” and links to the District Court of Maryland listing actions a landlord can take against a tenant (and vise verse).
What seems to be a comprehensive guide is the “Landlord – Tenant Handbook,” which is offered as a manual to renting for both the landlord and tenant. The handbook describes: the obligations of the landlord and tenant; property licensing requirements; rental application and lease; security deposits; property maintenance; complaints; terminating the lease; and “survival tips.” The handbook and other landlord – tenant resources can be found at montgomerycountymd.gov/dhca (click the “Landlord & Tenant” link).
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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of September 10 , 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.