So you traded up and are sitting pretty in your gorgeous new home, but your old one is just … sitting there. It’s languishing on the market, which means you’re paying two mortgages instead of one. But there is a way to ease this financial squeeze and, dare we say, even profit: Rent out your home while trying to sell it. That way, you rake in rental income while waiting for the perfect buyer to come along. Sounds sweet, right?
Well, renting out a home while trying to sell it does come with some downsides and risks. Here’s what you should know before giving it a go.
You’ll have to find a tenant who’s OK with temporary digs
There’s nothing illegal about renting out your house while trying to sell it, as long as you clue your tenants into your plans. The challenge is you’ll need to find tenants who accept that this is a temporary lease—once a buyer bites, they’ll have to skedaddle.
To make sure your tenants are crystal-clear on the arrangement, get it in writing by having them sign a legally binding lease. Tracey Hampson, a Realtor® in Valencia, CA, with Century 21 Troop Real Estate, recounts this cautionary tale of what could happen if you don’t.
“My seller had rented out her home temporarily to a friend who agreed to stay for a month or two,” says Hampson. The buyer, trusting her buddy to do the right thing, didn’t draft up a lease. Big mistake. Not only did this “friend” leave the home a wreck before showings, but once a buyer was willing to look past that, the tenant refused to leave.
“We had to get the sheriff involved, the buyer walked, and her friend stayed there for three months without paying a dime,” says Hampson. “It was a nightmare.”
Moral of the story: Draw up that lease! Also know that having a tenant is going to make it harder to show your home (more on that next).
You can’t just schedule showings any ol’ time
In most areas, a landlord needs to give at least 24 hours’ notice before entering the property—or arranging for someone else, like a prospective buyer, to enter it. This requires a cooperative tenant who is willing to both vacate the place for a while and keep the place clean at all times. So unless you find the perfect renter, things can get difficult.
Your renter will “have nothing to gain in keeping the home tidy and presentable,” points out Adriana Mollica, an agent with Teles Properties, in Beverly Hills, CA. “They aren’t going to make any money from the sale, so what motivation do they have to take the extra effort in keeping the home clean?”
Worse yet, you run the risk of having the tenant refuse to leave and stay home when your real estate agent shows the property—which can make buyers uncomfortable.
“It just feels weird when a tenant is lurking,” says Mollica. “That’s not the ideal environment for buyers to fall in love with a house.”
And even if buyers are willing to see past all this, they might also have to wait for a while before moving in. Why? Because most landlord-tenant laws require at least a 30-day notice to vacate, so don’t expect your renter to pick up and move as soon as you sell.
Your home might sell for less money
All things considered, if you try to rent out your home while selling it, it could linger even longer on the market. You could be looking at “a significantly reduced pool” of buyers, says Josiah Grimes, a real estate investor and owner of Atlas Wholesale Homes, in Phoenix. And those buyers might expect more out of you.
“Anyone who is willing to take on that added headache will expect a better deal,” says Grimes.
Also expect to get less rent than a traditional lease.
“If you’re expecting to sell soon, you may have to offer a better deal to entice prospective renters,” says Grimes.
Alternative No. 1: Think caretaker, not renter
Some people actually seek out a temporary situation that offers cheap rent in return for maintaining the home and keeping it ready to show on short notice. A home caretaker understands what’s expected and doesn’t count on sticking around for long. Most major cities have one or two home caretaker organizations that specialize in placing people in homes for sale.
Alternative No. 2: Consider a short-term rental
Go the very short-term rental route, leasing your home for only a few nights at time on sites such as Airbnb. This helps you avoid the annoyances of a longer-term tenant; plus you can charge more per night than you can per week or month. The downside? Your home will have to be furnished, because no one’s going to pay to sleep on the floor. Still, if you’re staging the place anyway and are in a tourist area where hotels are lacking and vacationers plentiful, it’s a good option.
Otherwise, renting out a home you’re trying to sell could mean you end up with a lower sales price and less rent. Still, if you want to try, make sure you have a tenant you trust, a legally binding lease with clear instructions on your expectations, and then heaping portions of patience to get you through. Also make sure to read up on how to become a landlord (which isn’t as easy as it looks).
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