Renting (leasing) commercial or multi-family property for a profit is the very reason anyone makes this form of investment in the first place.

• You haven't been able sell at the price you want so you rent - “If I don’t get my price, I’ll just rent it out!”
• You are faced with a financial loss but you are not ready to sell - “It costs a lot to maintain unused, so I’ll rent it out to reduce the loss.”
• You want to wait for the market to change fast AND furiously upward - “I’ll just rent it out and see how the market goes.”
• The property is not a priority, and you just want to cover costs - "I don't know what to do right now and I'm not comfortable with market prices, so we'll just rent it out for now.”

Owners with only own one solitary single family residence that was not intentionally bought to lease out at a profit, will typically find that renting it out is a costly decision. That's because with few exceptions, profit is only achieved when purchased for profit to begin with: at a specific price to get a specific return.

So unless you intentionally bought the place at a price that by calculations was able to provide a profit, you are not likely to generate one.

Here are some typical assumptions you may be making about renting your own residential property:

• The market will go up enough in the near future for you to be satisfied with the sales price you will get
• The place will be rented 100% of the time, at the monthly rate YOU want
• (Rental Income - Expenses) > Total Costs
• The tenant will be trouble-free, follow rules, and take care of your place
• There will be no new assessments while you are still the owner
• Borrowers will have the same capacity to buy next year

Here is the reality about renting your residential property:

• Applying THE MOST speculative outlook for growth, (a 3% annual appreciation), it takes 3-7 years for the market to grow enough for you to get the 20% premium you want today. By then, psychologically, you will want an even higher price, and this cycle repeats.
• There are few unplanned situations where (Rental Income - Expenses) > Zero + Worth the hassle. Those who bought a decade ago or more in a normal market, or those who inherited are the exception. The remainder will end up with a monthly loss. The rules alone in most associations may restrict you from renting at the frequency or time period that you would need to cover costs.
• While you continue refusing lower offers or waiting for someone to pay the price you want, you incur losses from carrying the unrented property month after month after month: Taxes, insurance, homeowners’ fees, mortgage, utilities etc.
• You must be prepared for managing any tenant:
  • complaints to repair
  • chasing late or unpaid rent
  • repairing or replacing whatever wear, tear, and damage that occurs while they are in there
  • dealing with the association when the tenant breaks rules or causes you to pay fines
• If you decide to sell while your last tenant is in the property, don’t be surprised when they don’t comply with showings even though they may have agreed to do so in writing within their lease.

If you have decided to rent-out your place

If so, it is important to complete an honest calculation to determine if it will ACTUALLY generate enough income to be worth the risk, time, and aggravation. Start by calculating:

Now make your calculation:

+ Income – Cost = Net Income

Net Income > (Risk + Time + Aggravation) ?

Who pays for what?

What you will need from prospective tenants

It’s better to have your place empty and losing money than to have let a dead-beat tenant into your property.

A bad tenant brings with it as much turmoil as identity theft, takes months and thousands of dollars of loss and cost to resolve... and you will be the proud sponsor of a local attorney's child's college fund. The following are what you should be prepared to require of any prospective tenant in order to evaluate them and have them be accepted by your association (if your home is part of an association):

• Proof of credit worthiness
• Proof of finances, employment and employment history
• History of residence
• Personal references
• Proof of ID

Once you have a prospective tenant...

...go ahead and use our tenant application to send prospects a set of background questions that you can use to determine which one is the best candidate.

You must be registered and logged in for access to the tenant application form

Don't get in trouble

We are in a world steeped in bureaucracy where it's so easy for a tenant to file a complaint leading to endless hours in a courtroom with expensive attorneys

Summary

• Step 1 - Make sure you know what you will be getting into as a landlord. Many hate being a landlord, and for good reason.
• Step 2 - Understand what your community and municipality will permit you to do, what costs the tenant will pay and what you will pay. (You obviously can't run it like a hotel without a hotel license or without paying a occupancy or "bed tax.") If your property is part of an association you may need approval while lease length, frequency, and specific usage are restricted.
• Step 3 - Research the price range you can expect to get by looking at recent rentals of similar places. Remember prospective renters are looking at other places and if they can get a better value elsewhere that is where they will go.
• Step 4 - Calculate the expenses you will incur.
• Step 5 - Determine if you are likely to make a profit, cover costs or if you are going to end up subsidizing your tenant.
• Step 6 - Assuming you are still OK with renting and it makes sense, you will list the property and screen candidates using our tenant worksheet. You will likely have to (and you should regardless) obtain a current credit report and criminal background check.
• Final step - Once you have a good candidate let the real estate professional or an attorney draw up a standard lease from the state bar or real estate association, have them sign it and provide necessary deposits and get approval for them from the association if necessary.

tax planning for rentals