Can’t Sell? Why Renting Doesn't Have to Be a Scary 'Plan B'
Nest DC
Like never before, we are experiencing an influx of properties that weren’t successful on the sales market. High interest rates mean fewer people are moving, and fewer people are ready to be locked into a mortgage that may be a stretch. But if you have to move, what can you do? While renting out your property may be less than ideal, it could be the right choice for the short-term or even long-term. We understand that becoming a housing provider, especially when that wasn’t your plan, can be daunting. In this blog, we will dive into common concerns about rentals such as bad tenants, property damage, legal disputes, vacancy, and loss of income.
Bad tenants: Worry over problematic tenants is why many homeowners decide against renting, but we’re here to reassure you: leasing to bad tenants isn’t the norm. Tenants can cause issues in many ways. Perhaps they don’t pay rent on time, cause property damage, or engage in illegal activities. We’ve seen it all and can tell you that a thorough screening process is your best protection.
Your tenant screening process should include credit checks, references, and background checks to minimize the risk of renting to unreliable or risky individuals. We also highly recommend using a tool that helps protect against fraud. Once you’ve established a procedure, never make exceptions. While an application can’t predict future behavior, positive rental references, adequate income, and solid credit history are good signs that you’re leasing to a tenant who will follow the rules and be a good neighbor.
Pro-tip: Make sure your process is in line with fair housing regulations.
Property damage: Even with responsible tenants, accidents happen, and property damage can occur. From minor repairs to major structural issues, unexpected expenses can eat into your rental income. Before moving in a new tenant, we recommend having a professional inspect your home or at the very least, that you take care of repairs that you may have put off. It’s much easier to replace an old appliance before tenants move in and ask for discounts when their refrigerator breaks. Next, line up preventative maintenance. This could be monthly pest control, landscaping, seasonal HVAC checks, or even setting up automatic deliveries for air filters.
Before your tenant moves in, be sure to collect a security deposit and thoroughly document the condition of the space. During the tenancy, it’s smart to perform regular inspections to catch any maintenance items your tenants may not be aware of and to let them know you are keeping an eye on the property and how well they are maintaining it. Preventive maintenance will always be more cost-effective. For unforeseen situations, set aside a portion of your rental income for maintenance and repairs.
Legal disputes: Renting a property involves adhering to various legal regulations and obligations. Disputes may arise regarding lease agreements, security deposits, eviction processes, or tenant rights. Make sure you understand the applicable sections of the DC code. You may even wish to consult with an attorney before finalizing your lease to ensure proper contracts are in place.
If legal issues arise during the tenancy, do not discourage your tenant from seeking resources. At Nest, we often suggest tenants contact the Office of the Tenant Advocate for advice. If you are secure in your understanding of the law and your lease, a second opinion from OTA will help your tenant understand that they may be interpreting the situation incorrectly. Of course, don’t delay hiring legal counsel if there are consistent breaches of lease or nonpayment of rent occurs. Nest DC retains in-house counsel to advise owners on these more serious matters.
Vacancy and loss of income: Ideally, your property should have a steady stream of tenants to generate consistent income. However, extended vacancies can occur for a multitude of reasons. Look at your home as a business. Is it attractive to the current market with the appropriate upgrades? Be realistic about the market. Washington, DC is unique in being highly transient and impacted by election cycles. It's also unique in that specific neighborhoods compete with new construction that depresses that submarket. Budget for vacancy periods and have a contingency plan to cover mortgage payments and other expenses when the property is unoccupied.
Market downturn: The real estate market can experience fluctuations, impacting rental demand and prices. An economic downturn could result in reduced rental rates or difficulty finding tenants. Knowing market conditions and having a contingency plan will help you navigate such situations.
While the worst-case scenarios are scary, we find that prepared property owners rarely experience them. Understanding your budget, implementing a thorough screening process, scheduling regular maintenance, and having a solid understanding of tenancy laws can help mitigate risks associated with renting your home. Consider consulting with a property management company to guide you through the challenges and ensure a successful rental experience.
For more happy home content, we suggest checking out our blog on self-managing your rental property, and if it’s right for you.
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