- When I had my first baby in 2014, my husband and I decided to rent out our house and move into a cheaper apartment.
- We expected to make $US400 a month above our mortgage payment, but we ended up losing money because our tenants were frequently late on their rent, which meant we couldn’t pay our mortgage and got hit with fees.
- Looking back, I wish I’d done a few things differently – including hiring a property-management company and doing a background check on my tenants.
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Renting out your home can be an effective way to make some extra money – but if you’re not aware of the risks and potential costs involved with being a landlord, your efforts to bulk up your bank account might be counterproductive.
I learned this the hard way.
When my husband and I had our first baby in 2014, I decided to quit my job and stay home. This last-minute decision tightened up our budget, and it also made paying our $US1,200 mortgage difficult.
We decided to move out of our house and into a smaller, cheaper apartment – our rent was $US1,090 – to save money. Renting out our house seemed like a smart idea: It was in a popular neighbourhood where rentals were in demand, and we would live close by to take care of any issues that came up.
We planned to charge $US1,600 for the three-bedroom, one-bathroom house in Minnesota, which should have left us with an extra $US400 per month after the mortgage payment. Unfortunately, our “smart idea” ended up costing us money in the long run.
Looking back, there are a few things I would tell myself before jumping into becoming a landlord.
Do a thorough background check
When we moved out of our house, we really couldn’t afford to pay our mortgage and our new rent – so rather than waiting for the best, most reliable renters, we settled on the first applicants, a young couple who seemed nice enough.
Of course, we interviewed them in person and had them fill out an application. We even called their references. What we didn’t do, though, was check out their finances, including their credit scores.
While the renters seemed like kind people, they paid late every other month, which compromised our ability to pay the mortgage. We were late on our house payment probably five times over the course of the year, which added up to hundreds of dollars in fees (plus a dent in our credit scores).
Make sure you’re not relying on the income
Renting out a home can be a bit of a catch-22. Being a landlord can bring in extra money, but it isn’t necessarily a smart move if you need the money.
Because we couldn’t pay our mortgage without our tenants’ rental check deposited in our account, it would have been far wiser to build up some savings to fall back on before taking that financial risk.
Be prepared for awkward conversations
This may seem obvious, but not everyone is cut out to be a landlord. On top of the physical labour that comes with repair and maintenance issues, there’s also the emotional labour of having hard conversations about late payments and, if the situation escalates, potentially kicking your tenants out.
I learned the hard way that if you’re not direct and confrontational, or you would rather avoid awkward situations involving finances and your personal assets, being a landlord isn’t the best idea.
My husband and I both lean toward over-accommodating, which made confronting our tenants about their consistently late payments really overwhelming.
Don’t rent out your place if you plan to sell anytime soon
Our tenants still lived in the house when the time came to sell, and to say the place was a pigsty during showings is an understatement.
We bought our house at the height of a buyer’s market, and while we sold at the height of a seller’s market, we didn’t make a dime on the sale.
There were a number of other issues in the process, but one important thing I learned is that no matter who your tenants are (and even how clean they are), trying to coordinate showings and make sure the state of the house is up to par at all times can get complicated with someone else living in it.
Go over your lease with an attorney
I’m embarrassed to say it, but we used a boilerplate lease template we found online when we rented out our home.
To prevent the issues we dealt with, it would have been smart for us to go over our lease terms with a lawyer before having our tenants sign. That way, we not only would have had more protection against financial losses, but we would have also had a buffer to fall back on in difficult conversations with the tenants.
Involve a rental-management company
Looking back, my husband and I simply weren’t prepared for the financial responsibility of being landlords (or, honestly,buying a house in the first place).
We should have consulted with a rental-management company to facilitate the lease and payments, but we were more concerned about making the maximum amount of money.
Since selling the house, we have mutually decided renting out a place isn’t exactly up our alley – and, luckily, we’ve also worked our way to a much better financial position.
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