What To Do When Managing a Rental Property

Many miitary families buy and sell homes during their many PCSes. Believe us, we work with many of them.  But sometimes it makes more financial sense to keep a home and rent it out after a PCS.

When a rental property is managed correctly, it allows the owners to break even or make a profit on home expenses. This allows them to buy or rent at future duty stations.

However, keeping your home as a rental property is a risk, especially if your PCS orders take you to a different time zone. If you are not available to maintain your property, you will need a property management company. The relationship between the owners and the property management company can make or break the rental property’s success.

If you are considering turning your house into a rental property, here is what you need to know:

1. Make sure that the rent in your area will cover your monthly mortgage payments.

Make sure to add in a cushion of a few hundred dollars each month. You will need to leave that cushion to save up for periodic home repairs. If the average rent is below this amount, you will lose money.

2. Find a reliable property management company.

You cannot rely on a friend to check on your property and fix broken appliances. Even the most willing and helpful friends have their own lives and can’t drop everything to check on your property. Research to find a reliable company that will handle emergency repairs, do tenant screening and handle the legal aspects of renting out your home.

3. Calculate your rental company’s fees.

Many companies charge 10 percent of the monthly rent as their management fee. They may also have a realtor incentive fee when attracting new renters. Get these numbers into your budget up front.

4. Know the tax laws.

This is a big one. If you manage a rental property without using it as your primary residence for more than five years, you will be charged 10-15% in capital gains taxes when you sell the home. This is a huge portion of your profit, so you should plan to reside in the house or sell it before that date.

5. Plan for the property to be empty.

Renters who are military families may break a lease with PCS or deployment orders. They have to give you notice, but it’s possible your property will sit unrented between tenants. You need to prepare for this and have enough savings to make a few months of mortgage payments out of pocket. If you are living on base or paying rent at your next duty station, you won’t have enough to cover both mortgage and rent from one BAH.

6. Get property insurance.

You will have to pay insurance on the property you own. Since property insurance doesn’t include flood, wind or hail damage, you may need to apply for extra coverage in your area. This covers your house in case of flooding, hurricanes or tornadoes.