Should I Become a Landlord? | Healthcare Concerns

By JUNE FLETCHER

Q: In 2007, I inherited a four-bedroom home in Great Neck, N.Y., valued at $550,000. My only expenses are taxes and utilities, which total $10,000. I live out of state, but visit the home twice a year for a total of two weeks. Should I sell the home or rent it out?

?Location withheld

A: To answer this, you need to analyze both the functional and financial aspects of why you continue to own this home nearly three years after you inherited it.

Let?s look at the functional aspect first. Does this home have any future use for you, beyond its current function as a two-week annual getaway?perhaps as your retirement home, or family homestead that you might want to bequeath to your children?

If the answer is no, then make any needed repairs and put your home on the market as soon as possible to catch the spring selling season. Don?t delay, since low mortgage interest rates won?t last much longer, and tax credits for buyers will expire on April 30. You don?t say why you come to Great Neck for two weeks every year. But if it?s for any reason other than to maintain the home, it?s a false economy to pay $10,000 annually for taxes and utilities (as well as other incidentals you don?t mention, like insurance, lawn care, and repairs), when a two-week stay at a boutique hotel in Great Neck costs about $3,500?and you don?t have to clean the bathroom.

However, if the answer is yes, then renting out the home makes a great deal of sense and could provide you with a nice income. On Oodle.com, I found rents for four-bedroom Great Neck homes that ranged upwards of $2,750 a month. And though renters will subject the home to more wear and tear, having the home occupied and warm will help keep pipes from freezing in the winter, and the seals and gaskets on appliances and fixtures from drying out. It also will discourage intruders and animal and insect pests from moving in.

But before deciding to become a landlord, ask yourself whether you have the time, temperament and skills to manage from a distance. You?ll be dealing with clogged toilets, jammed garbage disposals, spills on carpets, cleaners and handymen. (A good rule of thumb: Budget between 1% and 2% of your home?s value to maintenance, depending on its age and condition.) You?ll also have extra costs for utilities, marketing, screening tenants and perhaps a local property manager.

As a landlord, you will have to keep excellent financial records to satisfy the Internal Revenue Service and take advantage of deductions. (See Topics 414 and 415 on www.irs.gov.) It can get complicated, so set up a financial spreadsheet or invest in some packaged software for landlords like Quicken Rental Property Manager to help you keep track of income and expenses.

Send questions and comments to June Fletcher at fletcher.june@gmail.com.

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