Turning a property into a rental is something that is often underestimated.
As great as it would be to have someone call you one day and say they want to move into your home, pay you top dollar rent, which will cover your mortgage and provide you with cash flow… that is not how it works.
The truth of the matter is that owning a rental property is no walk in the park. Regardless of it being viewed as a ‘passive’ income stream.
The difficulty starts way before a renter is even living there. First, a homeowner must find out what they can get for monthly rent in the area their home is located in.
Then most likely repairs need to be made in order to get the desired monthly rent. Depending on the repairs needed these costs can considerably affect the viability of this option. If the home requires major repairs in order to get the desired rent from a tenant those repairs need to be funded out of pocket. Those out-of-pocket expenses will directly impact the rate of return a homeowner may see.
Next, you will have holding costs while repairs are being completed. These costs include the monthly mortgage payment, property taxes, and monthly insurance premiums.
Even if no repairs are needed to command the rent you desire from a tenant you will have the task of finding a tenant! This can take weeks or months to do. And… every day it takes you to find one, means more of the mortgage you will be paying down yourself.
When you have found a tenant and they have moved in. Life’s great, right? Perhaps. That is until something breaks and that tenant calls you in the middle of the night to fix it. Which you have an obligation to do. And will be paying for!
If done correctly turning your home into a rental can be a great option for some. However, it is not as easy as it is commonly made out to be. Beware of the potential losses you may incur if everything does not go to plan. If those potential losses are simply not sustainable given your financial position. It is a much safer bet to sell your home, take the cash, and move on with life.
