My recent blog post “Why Your Inherited House Will Become a Rental Nightmare” is a must-read before deciding to rent the property you just inherited, instead of selling it. If you have never before been a landlord be aware of these5 mistakes that first-time landlords often make when beginning the rental process.
- Setting the rent too high or too low – basically, not knowing the rental market.
- Too high: Perhaps you started with the mortgage payment you inherited with the house and set the rent to cover that, plus a bit more for maintenance costs and profit. The problem is that renters assess only what the property is worth to them against their alternatives in the market, not what it is costing you. First determine the market for a property like yours, and only then determine if you can afford to offer it for rent.
- Too low: You are not only leaving cash on the table, you are attracting lower-end renters than your property merits. Low-end rental markets are notorious for problem renters. Higher-end markets tend to have fewer tenant problems, provided the property is up to the rent-level standard.
- Not knowledgeably screening tenants. You can hire a professional background-checker to assess credit history, criminal and eviction records, for a reasonable fee. You will probably need to do the rent-payment history and the verification of employment and income yourself. You must have the appropriate forms signed by the applicant before you can ask for this information.
- Holding out for an applicant with perfect credit. Why is that a problem? Applicants with a good rent-payment history but carrying a few not-so-serious credit flaws may not be eligible for a mortgage loan, so they will stay with you longer, working to improve their financial record. Applicants with perfect credit may be buying a place and moving as soon as the lease is up.
- Discrimination is statistically reported to be an ongoing problem in rental markets. If you aren’t comfortable making tenant choices that avoid discrimination, you can be at risk of being reported – because applicants may know the signs.
- Hiring a property management company to shield you from making the above mistakes – only to have the company take all the profits and do an indifferent job that may actually lose tenants.
Renting may initially sound like an easy and quick solution to an inherited house, but it can be a complex process. Consider your options and assess your capabilities for starting out as a landlord before committing to renting.