Do You Want To Be A Military Landlord?
Do You Want to Be A Military Landlord?
The time has come, you have your PCS orders in hand and are starting to plan your move to your next duty station. Have you thought about turning your current home into a rental vs. selling it? Becoming a military landlord may not be easy, but it can be done, especially with the services of a professional property management firm. And, remember that real estate investments are a great way to build your personal wealth. Below, we have outlined some things to consider before making the decision to rent your home.
A Good Rental Candidate? | Here are some things to think about as you consider your options. Is your home located in a desirable location/neighborhood/school district? How is the local economy in the area? Is your home near installations, shopping, and entertainment venues? Do you think that there are enough potential renters in your area (military areas are usually great for this)? Is everything in the home in proper working order? Is the home well maintained?
Run The Numbers | Renting or selling your home should be a business decision, not an emotional one. So, no matter which way you are leaning, run the numbers. Is the fair market value of your home equal to or greater than what you paid for it, and your mortgage? If a potential buyer asks for you to pay closing costs, can you? If selling, can you pay for needed repairs, transaction expenses, and broker fees? Are there any current market conditions that will affect the sale of your home? Are you able to rent the home for an amount that will cover all costs - mortgage, interest, insurance, property taxes, HOA fees, home warranty, and more? How will your tax liability be affected by maintaining the home? If you choose to rent out your home, you will be building equity for a future large profit.
You will incur capital gains tax liability on any income you make from the sale of your home. But, you can avoid this by rolling that income into a new home within two years. You will avoid being taxed altogether if you were in your home for less than two years and are selling due to PCS orders. Consult your tax advisor.
Make Your House Ready To Rent | Before you PCS, you need to make sure your home is ready to rent. Make sure that everything is in working order. Depersonalize the home, change paint colors to neutrals. Interview and hire a professional property manager. They can inspect your home and make suggestions. Make sure that you know about all anticipated expenses - termite bond, homeowner insurance, home warranty, etc. Discuss what your expectations are for tenant responsibilities - lawn care, security system, renters insurance, pest control, etc.
Your property manager will take a lot of responsibilities off your plate. They will market and show your home, screen tenants, inspect the property, handle needed maintenance and repair items, and keep an accounting of your income and expenses. If your home is located in the Hampton Roads area, Southeastern Virginia, or Northeastern North Carolina, contact us for a referral to a property manager that can discuss your options with you.
Prepare For An Empty House | Today’s rental market is incredibly strong, but it is always a good idea to have three to five months of mortgage payments in reserve. If your home is vacant for a period of time, consult your tax advisor, there may be lost revenue benefits. If becoming a landlord after your next change of duty station is what you want to do, it is best to start saving your ‘reserve fund’ now.
Ensure You Are Insured! | As a landlord, it is very important that you have insurance and understand what your policy covers. The insurance on your primary residence is called homeowners insurance. This is very different from the types of insurance you need for a rental property. Here are some types of insurance to consider, as always, you can consult your property manager for insight and recommendations.
Landlords Insurance covers the landlord/owner from financial loss should something happen to the property - fire, explosion, lightning, storm, earthquake, flood, theft and malicious damage. Tenant’s belongings are usually not covered, so you should ask whether there is a renters insurance requirement in the lease documents. Umbrella Policy is a liability insurance that covers losses that exceed those covered by other held insurance policies. Vacant Property Insurance can be placed on a property instead of the landlord policy because vacant homes have a higher risk of theft, vandalism, arson, water leaks, and other circumstances that could lead to major repairs if left unnoticed for a long time. You can check your current policy to see if there is a vacant property clause. Some policies will void if the property is vacant for more than 60 days.
A Neighborhood Watch | If you choose to become a landlord, you should consider the property an investment/business. You should still stay somewhat connected to the property as you are invested and the tenants are not. You can stay connected to the area by following the town newspaper’s Facebook account, or maintain your connection with the civic league or HOA where the home is located. Next Door is also a platform that will let you know how things are going in the neighborhood. If you notice something concerning, contact your property manager.
As a military member, let us know in the comments below if you have any other information to share with fellow service members that are considering becoming landlords. We would love to hear from you.