We recently got orders to Camp H.M. Smith, Hawaii (woo hoo!). Along with those orders came a decision on what to do with the home we bought near Shaw AFB. We chose to rent out our home due to the low cost and quick turnover.
Weighing the Options
We reviewed three points before making a decision:
1. How much can we sell our home for and how long will it take?
This is the most important factor as it drives the budget you will need to sell your house.
We set up an appointment with our realtor to discuss a likely selling price and average time on market, and found that we would need to bring about $2,000 to closing (at a minimum), and expect to list our home for about 3 months AFTER we move out.
Given our mortgage and utilities we would need to budget $5,000 for those 3 months. So our overall risk in selling the home was about $7,000 just to give it an honest try.
2. How fast can we rent our home?
Shaw AFB recently expanded, adding over a thousand Army personnel to the housing market. Due to this increase, homes were renting fast, and going for reasonable rates.
3. How much will it cost to rent our home?
We planned on renting our home for $1,400 a month. But our expenses came out to:
- $1,120 – Mortgage principal and interest payment
- $158 – Property tax
- $140 – Property management fee of 10% monthly
- $54 – Home insurance
- TOTAL = $1,472
The Benefits of Renting Out a Home
By renting, we were able to immediately cover our mortgage after moving out of our home. We found renters within one month.
We are claiming the interest and expenses incurred to rent the home on our annual taxes, which reduces our tax bill.
Our renters are slowly paying down the mortgage on our home, which gives us room later to sell the home at a reduced price. We can also use the equity as leverage to purchase another home.
Is Being a Landlord Risky Business?
Since we had a very new home, we were less concerned with repairs and damages that may pop up while renting out our home.
If you have an older home you may want to get a home warranty, or set up a reserve fund to pay for costly repairs. As a home owner, you are legally bound to fix anything that breaks in a timely manner!
If you lose your renters you may have to pay out of pocket for your mortgage while looking for another tenant.
Your tenants may damage your home beyond their security deposit.
You can mitigate the odds of this happening by carefully choosing tenants and screening credit scores.
Renting to fellow military is usually a safe way to avoid this, as they will have to pay you for the damage. If you rent to someone with nothing to lose, then the cost of small claims court will likely outweigh the costs to get your money back.
Your best protection against these risks is to save back an emergency fund.
Will you Rent your Home Out?
Let us know how you handled this situation in the comments!