If you have property that you are not using should you sell it or rent it out? If you determine that you do not want to sell or that the timing is not right due to the sales market or other factors, then it may be time to consider whether to become a landlord. Here are a few factors to consider.
The best scenario is for a rental to produce a positive annual cash flow. First, determine the fair market rental value of your property. You can check comparable rentals in the community on websites such as Realtor.com or Hotpads.com. Don’t count on always receiving steady rental income. Transition time between tenants can take time.
Also, subtract property expenses such as property taxes, mortgage payments, insurance, utilities, repair and maintenance costs, and property management fees if you do not plan to manage the rental yourself. These costs can average approximately 8% to 10% of the rental income.
Maintenance costs can be particularly high if the structure is old or major repairs have not been made in a timely manner. Landlords have a legal obligation to keep the premises in a habitable condition which means, among other things, that all household systems must be operable.
There are some tax deductions available to landlords. Mortgage interest payments are one. Depreciation is another. You can deduct the value of a rental home over 27.5 years for residential rentals. You can also deduct the cost of repairs to the rental property and travel expenses related to the rental activity. Landlords may also be able to deduct their home office expenses.
Some landlords can claim so many deductions that it more than offsets all their rental income, resulting in a “net loss.” You may be able to deduct the loss from any nonrental income you have.
To obtain a general idea of how your property value, you can consult websites such as Zillow. If you require advice and assistance with becoming a landlord, consult with an experienced real estate attorney.
Weinstein, Chase, Messinger, & Peters is an experienced law firm located in Brooklyn. The firm serves all of New York State with quality legal services regarding a variety of legal matters. If you need a consultation, contact WCMP for a consultation.