“Lots of people decide to keep their luxury property as a rental if they’re relocating because their mortgage payments, especially if they have a low rate of 3% or 4%, can be covered by the rent,” Blanchet said. 

In the Tampa, Sarasota and St. Petersburg areas in Florida, demand is high and supply is low for luxury homes, including both rentals and sales, said Liane Jamason, broker/owner of Corcoran Dwellings in Sarasota, Florida.

“Homeowners can sell for a great price right now, often with multiple bids and over the asking price,” Jamason said. “But there are plenty of professional athletes and millionaires from other states who are relocating here or want a second home but prefer to rent and get to know the area before they buy, so renting can be lucrative, too.”

“If you own a condo, you should ask your agent to see how many units are available for rent or sale in the community,” Jamason said. “If there are five others in your building for rent, you may not get the rental income you want.”

Responsibilities, risks and liabilities of landlords

Homeowners who become landlords need to take multiple steps to make sure they meet the expectations of potential renters, follow local rules and maintain their property to keep it rented and to hold its value.

• Maintenance costs are higher on a larger or nicer home because if you need to replace something, you’ll want it to be of equal quality.  If you have a pool and extensive landscaping, you’ll need to pay for their upkeep because you can’t usually make your tenants responsible.
• In some jurisdictions, you need a business license or a permit to rent your property.
• You need to be certain that the lease protects your interests.
• Your homeowner’s insurance policy also needs to be updated to a landlord’s policy and possibly purchasing an umbrella insurance policy for additional liability coverage.
• The biggest risk is that you won’t have tenants for long periods or that your tenants won’t pay. – This can be mitigated by hiring an excellent Property Management Company like Team Thompson @ Keller Williams.
• There are carrying costs such as taxes, insurance and maintenance even if you don’t have a mortgage. 

Property manager solution

Turning over landlord duties to a property management company may be the best solution.  

• A great Property Manager will alert you when something goes wrong and oversee repairs or make decisions about whether to repair or replace things.  Team Thompson provides excellent communication and concierge type management services.
• Select a Property Manager who charges a fair, competitive fee.  Property management fees are typically 10% to 15% of the monthly rent and can be higher if you want the manager to take on more responsibility.  Team Thompson charges 10% a month.
• For short-term rentals, expect to pay 12% to 16% or even more of the monthly rent.
• A good property management company will advertise your property to get tenants.
• Run Background checks on all tenants – Team Thompson does 5 checks/screens per tenant

Capital gains and other tax implications

• If your property has significantly increased in value since you purchased it, you’ll want to consult a tax adviser before choosing to rent it.
• The capital gains tax exclusion on a profit of up to $250,000 for an individual or $500,000 for a couple depends on the house being their primary residence for at least two of the last five years. 
• We always suggest that you consult a tax adviser about the implications of converting a primary residence to an investment property.

Opportunity costs and potential profits

• Many people like the idea of earning rental income and owning a property that will increase in value, but others prefer to take their profits now and invest them in something else where they think they’ll get a higher return.
• More people like the safety of holding onto real estate for the long-term now because of the volatility in the stock market and nervousness over the bank crisis.
• Deciding to make your primary residence into a rental property may or may not be the best use of resources – It will depend on what your goals are.  Team Thompson is happy to consult with you to help show you the pros and cons of selling vs. buying anytime.
• If it’s in the right location and you find great tenants who pay on time, that could make sense. 
• It’s also important to consider your decision in the context of your timeline.  If you plan to move back to that area and live in the house again or your kids may want it, those are good reasons to rent it.  If you’re looking at this as extra income in retirement, then you may want to evaluate whether it makes sense to sell now and buy a different rental property that could be more lucrative or have a larger pool of potential renters.
• In a hot rental market, the pros of renting are more likely to outweigh the pros of selling, but it’s always smart to take a step back and review all the ramifications of your choices. 

Let us help.  Call to discuss!