- The Washington Times - Thursday, April 14, 2011

While the Washington-area real estate market, with its faster pace of home sales and rising home values, has fared far better than many markets across the country, not all homeowners are happy with their home’s current market value.

Homeowners who must relocate for a job or who want to move into a larger home and take advantage of today’s low interest rates and more affordable prices may be in a quandary when it comes to deciding when or whether to sell. Some weigh the option of renting the property for a few years in hopes of reaping a larger profit as the market improves.

Before placing a property on the rental market, homeowners need to consider the ramifications of becoming a landlord.

For most homeowners, the first consideration is cash flow.

“The good news for homeowners, at least in Northern Virginia, is that the market is starving for rentals,” says Chris Ann Cleland, an associate broker with Long & Foster Real Estate in Gainesville. “In areas outside the Beltway, especially for town-home owners, they can usually find a renter within a few days. This also means that rents are rising, which can help offset the cost of the homeowner’s mortgage payment.”

Simone Bercu, an associate broker with Weichert Realtors in Potomac, says homeowners need to make sure the rent covers as much of the mortgage as possible, preferably all of it.

“You should make sure you can carry the mortgage payments for a little while if your house is not rented right away, although right now there is a shortage of rental property in Montgomery County,” Ms. Bercu says.

Determining the rent, unfortunately, cannot be based solely on covering the homeowner’s mortgage payment. Instead, the rent must be based on market rates.

Pat Kennedy, an associate broker with Evers & Co. in the District, says, “If you live in a condominium, your management company might be able to give you some guidance about the rent charged for similar units. You can also ask a Realtor to give you an estimate of local rents and to check the [Multiple Listing Service] for comparable homes in your neighborhood. Another option is to search online on sites such as Rentals.com.

“Determining an appropriate rent is easier if you live in a community with a lot of rentals, but houses, especially in the city, are rare enough that homeowners can often get a good deal on the rent.”

Ms. Cleland says homeowners should avoid requiring tenants to pay any homeowners association fees.

“If the tenant does not make the payment, you could end up with a lien against your property,” Ms. Cleland says. “It is better to wrap that cost into the rent and pay it yourself.”

In addition to cash flow, homeowners must evaluate their responsibilities as a landlord. Legal requirements vary by locality, and in many areas a homeowner needs a permit or a business license to rent their property. Realtors who work in Maryland, Virginia and the District say that while the District’s laws are tenant-friendly, Virginia’s laws favor landlords and Maryland’s laws are generally balanced between the two interests.

“In the District, you need a business license and [must] register your property in order to rent your home,” Ms. Kennedy says. “I would recommend that people consult with a lawyer experienced in landlord-tenant law to check the contract. In the District, the tenant has the right of first refusal, which means that once you choose to sell the property, you must offer it to the tenant and allow a certain time period for the tenant’s response.”

Ms. Bercu suggests that homeowners carefully consider the hassle factor before becoming a landlord.

Story Continues →