If the house will be empty because you are leaving the country and you plan to move back in the house when you come back, that is obviously a huge reason to consider renting it rather than selling. The value you put on having your house to come back home to live in is something only you can decide, however.
Just remember that the interest paid may be tax deductible so keep that in mind when deciding whether to pay off as quickly as possible. That could effectively reduce the interest rate by as much as 30-40%.
I live by the rule that when something isn’t required (by law or contract) and doesn’t have any benefit to me, it should not be done. Unnecessarily contacting a mortgage servicer, bank, credit card issuer, etc, is more likely to make things worse than better.
His mortgage payments are only $572/mo, of which probably $400 is interest. It’s gonna be very difficult to get any benefit from this mortgage interest under the new tax law. Edit: nevermind this part since it’s a rental.
When interest rates are low and you can get a better return from other investments, paying down a fixed rate mortgage does not make sense.
Mortgage interest on rentals is still fully deductible as an expense on Schedule E and reduces the taxable rental income. New tax law didn’t take that way.
Fair, and I agree. However, all I said was that OP consider it (which would include determining your obligations under the contract). There are reasons why a bank would want to know, and you’re assuming that there is no contractual obligation. I imagine a bank is allowed to add a clause saying the borrower has to contact the bank in the event they begin renting out the property. Even if the bank can’t do anything to stop them.
It’s a deduction on Schedule E.
My bad, his talk of living there got me confused.
Something to consider: Under current tax law, that 100k profit from the sale of your home
is tax free. If you convert it to a rental for 3 years or more, that 100k will become taxable as a capital gain upon sale.
OP - are you a US citizen? If not, it may be wise to sell and sever your ties to the US until you come back. Depending on what state the property is in, and how long it takes you to rent it out, you could end up at risk of having the state determining you’re still a resident. All of this depends on a lot of other factors though.
Op, consider paying a consultation fee to a real prop lawyer to get some advice. IAAL but IANYL. There are potential liabilities like lead paint. Execution of proper forms for your jurisdiction, including any mandatory lease provisions, disclosures, and check-in forms, can help you keep the deposit if they trash the place. Transferring the house to an LLC may be wise, and a lawyer can help you minimize liabilities while maximizing income. But don’t take these steps without learning of potential tax consequences. Pay for a consultation, and it should be worth it.
Also don’t forego the background check etc. Due diligence is critical.
Will it? Lawyers charge $100-200 for a consultation generally don’t they? Seems the amount of information you can get from a lawyer in an hour isn’t going to be a ton and not really worth that cost.
You make a lot of good points about things that OP should learn about - lead paint, required local laws, LLCs (I disagree on that), background checks, etc But thats all stuff you can and should research and learn about yourself generally all for free.
Is there something special I can’t figure out on my own that I need to pay a laywer to tell me?
You can spend the time and learn it all yourself. People pay for subject matter expert because they don’t want to spend the time to learn any nuances given the opportunity costs. But your economic circumstances or desire to learn may make it worth it to go without.
But if you go without and miss something important you can’t rewind. (Case in point: I once defended a Landlord tenant action on basis that the property wasn’t properly registered with city’s rental certification ordinance. It wasn’t pretty for the landlord.)
This is the problem. You just don’t know what pitfalls there are. Sure, you can Google “should I set up an LLC for my rental business” and read about most of the pros and cons of a decision like that. But if, for instance, you don’t even consider searching about lead paint because it doesn’t pop into your mind, that’s where you can get into trouble.
I would’ve pegged the cost at higher than $200 for an hour, but depends on where OP is. My view is that if you’re not willing to spend 1k-1.5k on legal advice at the outset, it may not be worth trying to rent out the property. Especially considering that monetary fines may not be the only consequence of doing something wrong as a landlord.
That seems pretty excessive to me. Maybe lawyers are extra expensive where you live.
highmktgoods has a good idea to get a consult with a lawyer to be sure you’re not missing any gotchas.
But I really can’t see spending >1k on it.
You could be right. I’d be nervous about a lawyer that’s willing to have a one-hour one-off conversation with a client. But could depend on the market, or maybe that’s how these lawyers generally operate in this area.
There probably are going to be disputes down the line if you rent for long enough. IMO, it’s better to have a lawyer do more work at the outset so you can go to them if a problem arises and they’re more invested in your issue. But it’s basically a form of insurance, so maybe it’s not worth it, and OP can self-insure so to speak.
The people that work in local government that know the local laws are usually fairly helpful in reminding you of specific things you need to do in your locality. A quick visit to your equivalent city hall will probably get you enough information on rental compliance to know what to do without having to pay a lawyer.
IANAL but it seems to me that this is very true. New England sounds like the absolute worst place to try to roll it yourself and the south seems pretty much Laissez-faire. West coast is somewhere in between.
Yeah the market in question does really matter.
I’d make sure to put in a lot more research and CYA in NYC or S.F. than almost anywhere else. Most places have little regulation other than the basic state laws so you’re often pretty safe.
I’m in Oregon and Portland is getting more and more regulated so it is more important here now to make sure you’re aware of the rules.
This is the most important consideration. In the calculus of renting this particular property, you’re starting in the hole $100,000*t (where t is your marginal tax bracket in the year you sell the property). Also, when you’re doing calculations on this idea, you should include the $100,000 gain in your initial investment amount since you are sacrificing collecting that gain by renting it out. Lots of opportunity cost here. I doubt it’s worth it. Sell the property and buy another one that you intentionally choose for investment purposes. You’ll probably end up with a better investment property (return-wise) by doing that anyway.
Hmm…I didn’t know this part. I might rent it for two years and sell it after that so that I don’t need to pay the taxes as Capital Gain. Thank you so much for telling me this. I get to learn something all the time from this community.