What are the risks of renting my house out?

| April 6, 2012 More

Risks of renting your houseRenting your house out can be a fun and profitable venture. But just like any business endeavor, becoming a landlord carries some risks. You’re entrusting a major asset—your home—to people who you likely don’t know well, and who are not nearly as invested in its maintenance as you are. This is one major reason many new landlords, or real estate investors who are not planning to make a career out of managing their own rental properties, choose to hire professional property managers.

Here are some of the risks that a professional management company can help you mitigate:

Disruptive tenants
Aside from damaging the property, tenants can cause difficulties by paying late, refusing to pay, or violating the terms of their lease agreement. As with damage, this may be caused by an accident or one-time oversight, or be part of a pattern of behavior in which people attempt to avoid paying what they owe.

They could bring in a pet after agreeing not to, fail to mow the lawn and perform similar maintenance tasks, run up the water or electricity bills by leaving lights or faucets on or even just annoy the neighbors with loud music. How much of a problem a disruptive tenant is can vary widely. Tenant default may be the most serious risk, since it means a drain on the owner’s financial resources to pay the mortgage, property taxes and other expenses.

When trying to rent any property, there is a risk that it will be vacant for a prolonged period. Each day it sits empty is a day that a home is not bringing any revenue to the owner, and the cost of upkeep may actually be higher than while it is occupied by a good tenant. The owner or rental manager will have to personally see to it the home remains clean and looks appealing or else the odds of attracting a resident will go down over time. These tasks include caring for grass and clearing walkways, along with all duties that residents would generally be expected to perform.

If a vacancy lasts a bit long, it may not be a problem. If this occurs repeatedly or tenants are extremely hard to find, however, the expense and time maintaining a property may become problematic the longer it lasts.

There are serious liability risks associated with renting a property. Any risks to tenants or employees that occur on the property due to inadequate maintenance or dangerous property conditions leave the owner vulnerable to legal action. There is also the risk of fraud by tenants or prospective tenants, and of allegations against the landlord. Owners may also be accused of discrimination against employees or current or prospective tenants, which makes it important to have consistent, preferably written policies that demonstrate fairness.

One potential benefit is that insurance providers may consider the risk of theft and vandalism lower in an occupied rental than a vacant home, so coverage for some risks may be cheaper.

Rental profitability
The rental prices tenants are willing to pay will depend on market conditions and the state of the home, and they will fluctuate. If the area becomes more desirable, housing grows scarce or the property is particularly well-kept and appealing, then rents may be go up. Market changes can be unpredictable, however, and there is always a risk that rents will drop, making the home less profitable. Setting rents too high can drive away tenants, while setting them too low cuts profits, making it a difficult task.

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Category: Ready to Rent: Tips & Tricks