If you own a second property, you might be tempted to rent it out to generate income and defray the costs of ownership.
While the idea sounds attractive, there are downsides. First, you don’t get to use the property while it’s rented — meaning you miss out on enjoying it during peak season.
And owning a rental property means you’re operating a business. To compete with other properties, you’ll need to invest in furniture and kitchenware, the latest electronics, beds with quality mattresses and sheets, artwork, and more. Plumbing fixtures should be top-notch, including showerheads that deliver strong, consistent water pressure. You’ll have to pay someone to tidy up the place and launder between each guest stay. And you’ll incur liability insurance and lodging taxes.
And that’s assuming everything goes well — but watch out for the renter who trashes the property with late-night parties. Landlords have plenty of stories to tell about renters who destroyed furniture, damaged walls and stole property, from appliances to towels. Because of this, landlords tend to install durable but less comfortable furniture and lower-cost appliances — serviceable for renters but not ideal when you’re using the property yourself. Indeed, it’s hard to serve two masters.
This is why you need to check on the property often. If you don’t live close enough, you’ll need to hire someone. If you’re not handy, you’ll pay for repairs too, further adding to your costs. Management companies typically charge 20 percent to 50 percent of the rental cost.
Despite all this, you might still want to list the house for rent. If that’s the case, do the math. Determine how much you’ll pay for maintenance, utilities, taxes, insurance, repairs and amenities. Add more for preventive maintenance and for wear and tear, and don’t assume the property will be rented 100 percent of the allotted time.
Will you be able to charge enough in rent to cover the costs? If so, and if you don’t mind the issues noted above, then you can consider proceeding. A conversation with your Financial Planner might help you decide.