Renting a Home as an Absentee Landlord

By Barbara O’Neill, Ph.D., CFP®, Rutgers Cooperative Extension

Should a military family planning to move to their next duty station sell their home or keep it as a rental property? Like many financial planning questions, the best answer is “it depends.” There are many factors to consider when a service member is deciding whether to sell a home or turn it into rental property. Here are some key questions for Personal Financial Management Program (PFMP)staff to ask:

  • What is the housing market like in the area?
  • Are houses selling quickly or staying on the market for months (or years)?
  • Is there a strong rental market?
  • Is the service member prepared to be a long-distance landlord or able to afford to hire a local property manager to manage the property?
  • Can enough rent be charged to cover both the mortgage and any property management fees?
  • How much money is currently owed on the mortgage?
  • Does the service member owe more than the house is currently valued at?
  • Will a property insurance company insure the residence when it is vacant (some companies will not)?
  • Most importantly, can a service member afford to carry two homes if the first home can’t be rented or there are sporadic vacancies when tenants move?
    Photo by james.thompson
    Photo by james.thompson

These are just a few factors that service members must consider when deciding whether to sell or rent. For more information, see cbsnews.com/8301-505146_162-57443734/if-you-cant-sell-your-house-should-you-rent-it/

If service members decide to become absentee landlords, they should expect to pay a property management fee of around 10% of the cost of the monthly rent to the agency. They may also have to pay a set-up fee to open an account and keep a specific amount of money in the account with the property manager for emergency repairs costing a minimal amount, such as fixing a leaky sink. Major repairs, such as replacing a refrigerator or other appliance, should require authorization from the property owners.

Absentee landlords should consider purchasing a home warranty on the house for major components that could break (e.g., air conditioning). For a rental property, the cost is tax-deductible. Another recommended step is hiring a lawyer to review all rental agreement contracts.

Where can military families find a property manager who caters to rental units for military families? They can start with the Realtor who sold them the house. A good Realtor in a community with a large population of military families will have a network that includes local property managers who specialize in marketing to military families. The service member can also ask around among military friends and colleagues. Chances are someone will be able to recommend a property manager in the area who caters to military families.

Service members should interview at least three property managers before they decide which one to use. Cases have been reported of service members paying management companies only to find out later that they only did one drive-by in a year and/or never even walked into the house to check on the inside. Military families may also want to check out the websites militarybyowner.com and ahrn.com (Automated Housing Referral Network). They cater to service members who want to rent or sell a house to other service members.

This post was published on the Military Families Learning Network blog on March 30, 2015.

 

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