Gary Malin (pictured at left) is the president of Citi Habitats, one of New York City's largest and most successful residential real estate brokerages. He is also a licensed attorney and a member of the Real Estate Board of New York.
Renting out your home for extra income can be a wise decision in today's housing market. In most major cities, there is currently great demand for rental housing. And if you must move in this current weak sales market because of a job transfer, an expanding family or any other reason, renting out your property -- rather than selling it -- is a great way to generate steady income while biding time for a real estate market recovery. If you have chosen to take the leap and become a landlord, here are a few ways to ensure that the experience is a rewarding one.
Everything in Its Place
The first challenge for would-be landlords is getting the home ready aesthetically to rent. The appearance and overall cleanliness of the home is essential in attracting qualified tenants, and the home needs to be pristine prior to showings. Key areas need special attention. As the foyer is the first part of the home that visitors will encounter, it needs to be especially clean, clutter-free and fresh-smelling.
It is often said that "kitchens and bathrooms sell homes." Well, they also rent them. Make sure these rooms are spotless. Kitchen counters and cabinets need to be clear of clutter, and appliances need to be wiped down with a mild detergent inside and out. In addition, bathroom tile grout needs to be mold and mildew-free. Use bleach and a toothbrush if needed, as nothing turns off a potential tenant more than a moldy tub/shower.
Most tenants expect their new homes to be freshly painted, so put a neutral paint color on all the walls. Remember to put your personal tastes aside. The goal in painting is to appeal to the greatest number of people possible, so it's not the time to take risks or explore your creative side.
Make It Feel Like a Home
Now that everything is neat, clean and fresh, it's important to make prospective tenants feel "at home" in the space. Staged or furnished apartments usually show better than unfurnished ones -- if a few rules are followed. Allow the furniture to define what a space is. People are notoriously bad at envisioning uses for undefined spaces. For example, stage an alcove off the main living space as a dining area or office space rather than leave it open to interpretation.
While basic staging is a huge help in moving a rental property, allowing your personality to be reflected in the home is never a good idea. Be sure to remove family photos, religious artifacts and anything that reveals facets of your personal life.
Insurance and Legalities
Insurance requirements for rental property vary by locality, so make sure you have the appropriate insurance for your area. In any situation where you have people residing in your home, you take on some degree of responsibility for their well-being and safety. Often known as "landlord insurance," these policies can protect you against damage from tenants, as well as from fire and other catastrophes. In addition, most policies will reimburse you for rental income that you lost while repairs were being made in the event of a claim.
In addition, a rental property needs to have proper permits. Unfortunately, there have been many tragic cases where homes have been illegally rented that were full of health and safety hazards, and people have been injured -- or worse -- as a result. While no one likes dealing with the bureaucracy, it's important to have all proper permits in place prior to offering the home for rent.
Establish Policies and Procedures
Who does the tenant contact if a pipe bursts under the sink at 3 a.m.? How is the rent collected? What is the policy in terms of keeping pets? What about roommate shares? All these policies need to be established prior to showing the apartment. In some cases (for example, if you will be living in a city other than the rental home) it may make sense to hire a representative or management company to take care of the property on your behalf and be your "eyes and ears" on the ground. Typically these property management firms charge approximately 10 percent of the monthly rent for their services. It may be well worth the expense.
Figuring out what to charge monthly for rent involves taking a few factors into consideration. The first is, what expenses do you need to recover on the home (property tax, mortgage payments, etc.), and, in turn, how much profit do you wish to make from the rental? Another important factor to consider is how much similar properties are renting for in the area. It would be wise to spend an afternoon playing "prospective renter" and taking a look first-hand at the competition and what those properties are asking for in terms of rent.
Finding a Qualified Tenant
There are a variety of websites devoted to connecting renters and rental properties, but don't forget the value of "word of mouth." Before advertising, be sure to research fair housing laws to ensure that you stay within their guidelines in terms of providing equal opportunity housing. It's important to check applicants' credit to get a sense of their payment history, and all leases should clearly define a specified term of occupancy and should be in writing. Never do business on a handshake, and be sure to collect a security deposit equivalent to at least one month's rent to hedge against potential damage to the property that's inflicted by the tenant. When drafting leases, it may be wise to consult an attorney to make sure you are well-protected.
Is Being a Landlord Right for Me?
While being a landlord has its challenges, for a person with an entrepreneurial spirit and a desire for extra income -- despite the inevitable headaches -- renting out your home can be the solution. It's important to keep a positive attitude and expect the unexpected. Despite the hazards, becoming a landlord has proven to be a positive experience for a number of people. Best of luck on your decision.
Rent or Buy? 10 Major Metros
Want to Rent Out Your Home? Take Some Advice
Median home price: $368,000 Median rent: $2,600 Breakeven time: 5.1 years
Ever dream of owning your own Brooklyn brownstone or Manhattan pied-a-terre? Keep dreaming.
New York is one of the most expensive markets to buy a home in with a median home price of around $450,000. (The most expensive home on the market in New York costs $100 million.) Even with the highest rents in the nation, it still takes more than a decade of ownership before buying a place in one of the city's five boroughs makes more financial sense than renting.
Outside the city limits, prices get a little more reasonable. The breakeven time for the entire metro area is just over five years.
The best places to buy, however, are far removed from Manhattan in the distant suburbs of New Jersey. In Lake Como, N.J., for example, the breakeven time is just 1.8 years.
Median home price: $393,800 Median rent: $1,800 Breakeven time: 4.3 years
Even though home prices in Tinsel Town plunged by close to 40 percent after the housing bubble burst, homebuyers still pay a premium to live in the Southern California sunshine.
The median home price in Los Angeles is more than twice the national median. As a result, it takes a long time for buyers to breakeven with renters. If they aren't planning on staying four years or more, they're better off renting, according to Zillow.
Although rents aren't that cheap, either. The growing population has put pressure on housing supplies in the L.A. metro area, helping to push rents about 30 percent higher than the national average.
Median home price: $209,300 Median rent: $1,430 Breakeven time: 2.8 years
Chicago's housing market appears to be slowly turning the corner. Home prices in the Windy City rose for the fourth consecutive month in June, according to S&P/Case-Shiller.
However, while median home prices are nearly the same as the nation as a whole, rents are considerably higher. That makes buying a much better choice financially -- even for those who are planning to move out in as few as three years.
And, in some of the least expensive communities, such as the town of Dixmoor, south of Chicago, breakeven times for buyers are just one year. While in the tonier northern suburbs, such as Kenilworth, it's better for the long haul. Breakeven time there is more than 13 years, according to Zillow.
Median home price: $163,100 Median rent: $1,030 Breakeven time: 2.1 years
Texas' largest metro area is blessed with plenty of open land to build on and a local government policy that's friendly to development, which has helped keep housing here extremely affordable.
The median home price in the Dallas metro area is 20 percent below that of the nation and, as a result, it takes only a couple years of ownership for buyers to break even on their investments, according to Zillow. Meanwhile, demand from a steady flow of new residents has pushed rents slightly higher than the average city.
The wealthy suburb of Westover Hills, west of Fort Worth, boasts some of the most expensive home prices compared with rental costs. The breakeven time there is nearly 11 years. But in nearly every other community in the metro area, the breakeven time is less than three years.
Median home price: $187,300 Median rent: $1,300 Breakeven time: 3 years
Urban blight in some central city neighborhoods has kept a tight lid on home prices in Philadelphia and the surrounding towns.
That has helped to keep breakeven time for homebuyers within city limits to just 2.3 years, a little less than the metro area as a whole.
Buyers who venture out to the stronger housing markets in Philadelphia's wealthy suburbs will have to wait a little longer for their purchase to pay off.
In the fancy towns along the Main Line west of the city, such as Tredyffrin, it takes more than eight years to break even, while in the bucolic far suburbs in New Jersey, like Haddonfield, it takes 11 years to break even, according to Zillow.
Median home price: $379,100
Median rent : $1,850
Breakeven time: 3.5 years
Uncle Sam's ongoing hiring spree has helped the D.C. housing market recover more quickly than most other metro areas.
Home prices have gained more than 11 percent since hitting bottom in early 2009, according to S&P/Case-Shiller. The median home price in the area is now more than twice the national median, while median rents are a steep $2,000-plus a month.
Most of the best housing buys are inside the Beltway in Maryland's suburbs. In the town of Landover, for example, it only takes 1.4 years for a home purchase to start making more financial sense than renting, according to Zillow.
In the expensive suburbs west of the Beltway, it can take much longer for the math to work out for homebuyers. In towns such as Upperville, Va., and Middleburg, Va., it can take seven to nine years to break even.
Median home price: $162,800 Median rent: $1,594 Breakeven time: 1.6 years
Few markets got hit as hard as Miami did in the housing bust. Home prices are still off by nearly 50 percent from their 2006 highs.
In many communities, owning a home for a year is all it takes for an investment to pay off, according to Zillow. Even in some of the most expensive towns like Fisher Island and Key Biscayne, the breakeven point is only about six years.
Buyers may want to strike while the iron is hot, however. Prices have been on the upswing lately, rising about 7 percent between last November and June -- about twice the gain for the average city.
Median home price: $176,200 Median rent: $1,950 Breakeven time: 5.9 years
Foreclosures have plagued the Atlanta area recently. The metro area saw steady increases in foreclosure activity in the first half of this year.
Part of the increase is due to the national mortgage settlement which set new rules that banks should use to pursue foreclosures. The settlement, which was reached as a result of the robo-signing scandal, has opened the way for banks to clear their backlogs of foreclosures more quickly.
Now the market is flooded with short sales and bank-owned properties, depressing prices -- and creating bargains. The median home price in Atlanta has fallen to well below $180,000, which, combined with low mortgage rates, has made buying a great deal in most area communities.
But, as in most cities, it all depends on where you buy. In a depressed town like Jonesboro, where incomes is about 50 percent lower than the state average, you could breakeven in just over a year. But if you opt to purchase in the pricier Druid Hills area, it could take closer to 7 1/2 years.
Median home price: $363,700
Median rent : $1,950
Breakeven time: 4.3 years
Boston real estate is wicked expensive no matter if you are renting or buying. Land is pricey and space is priced at a premium.
In fact, home prices here are 80% above the national median. And rents average nearly $2,000 a month in the metro area. That's high, but renting is still the better option for anyone planning a stay of less than five years.
Still want a place of your own? If you want it to pay off, you'll have to be patient -- or willing to commute. The best buying bargains are in old mill towns outside of the city, in towns like Lowell and Lawrence, where it takes just over two years for buyers to break even. But if you want to be closer to the city, in Brookline, for example, you'll have to wait more than 10 years to break even, according to Zillow.
Median home price: $363,700 Median rent: $1,951 Breakeven time: 5.9 years
Limited land and an influx of well-paid tech workers has helped to make San Francisco one of the most expensive cities to live in the nation.
While rents are steep -- only trailing New York's -- home prices are triple the national level. As a result, the Bay area is most definitely a rental market.
It takes nearly six years for homebuyers to realize any sort of financial advantage over renting in the San Francisco metro area, according to Zillow. And in more desirable neighborhoods, like Sausalito or Mill Valley, it takes almost nine.
Farther outside of the city, in fancier communities like Atherton, Piedmont and Burlingame, it can take 20 years or more.