Do Not Forget Maintenance and Vacancy When Renting Your Home

by Hank Coleman

Too many first-time landlords only look at their mortgage payment and the price that they expect to receive in rent when they decide to become landlords. This is especially true if you are trying to rent out your home while you move into a bigger residence or move on to a new job in a new town but still decide to keep your last home. If the rent is larger than their mortgage, many first-time real estate investors figure that they have a good deal and will make money. But, there are more things that you should consider when letting renters into your home. Your monthly mortgage payment is not the only factor that should be included in calculating whether renting out your house is a good deal for you.

Instead of focusing on price and rent, think about the cash flow that your property will bring in to you. You should only rent out your former home if it will bring you a positive cash flow from the very start. Mike Summey and Roger Dawson, the author’s of “The Weekend Millionaire’s Secrets to Investing in Real Estate: How to Become Wealthy in Your Spare Time“, say that you should also consider how long your property will be vacant throughout the year, insurance, taxes, management fees, and maintenance costs. While most property taxes and home owner’s insurance are wrapped up in an escrow account included in your mortgage, maintenance and vacancy are not. These two factors alone can make many residential rentals unprofitable.

Consider this cash flow statement when deciding if renting is right for you:

Example
Income:
Total Rent – $1,200
Vacancy Factor – ($120)
Net Rent – $1,080

Expenses:
Mortgage – $650
Maintenance – $100
Taxes – $50
Insurance – $50
Management Fee – $120
Other Expenses – $50
Total Cash Flow = + $60

You can find the vacancy factors, delinquency factors, average rents for cities across America as part of the Census Bureau’s data. How long will it take you to find a new tenant? You must be prepared to carry your banknote on your own for a month or two while you find new residents. If you stretch yourself too thin between only making your mortgage and charging for rent, you will be up a creek without a paddle when even the little things break. For some other great real estate advice, check out this review of “The Weekend Millionaire’s Secrets to Investing in Real Estate”.

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