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Cover story: When a homeowner becomes a landlord
Question of the Day
Homeowners in the D.C. area often find themselves assigned to offices in other parts of the world for a year or two at a time and need to rent their property to generate added income. Other homeowners are waiting for the economy to improve before putting their homes on the market and are becoming landlords in the meantime. Homeowners trying to avoid foreclosure also may choose to rent their property, cover the mortgage with the rental payment and move to a less expensive home while waiting for home values to rise and their finances to improve.
“The rental market is hot right now in the D.C. area, and there are sometimes multiple applications for a rental,” said Chris Hager, a Realtor with Long & Foster Real Estate in North Bethesda.
Nick Pasquini, broker-owner of Century 21 Redwood Realty in the District, Arlington and Ashburn, Va., said some homeowners are taking advantage of competitive rental rates and low mortgage rates to improve their finances.
“Some homeowners can refinance to a lower interest rate and lower their mortgage payments and then charge a market rent that gives them positive cash flow each month,” Mr. Pasquini said. “But homeowners need to realize that if you are already renting your home and then try to refinance, you are considered an investor and will need at least 25 percent home equity and will pay higher interest rates than someone using the property as their primary residence.”
Once the decision to rent a property has been made, homeowners need to take steps to attract a good tenant, determine an appropriate rent, negotiate a lease and change their insurance coverage. An important early step is to examine the details of local regulations that cover the rental market.
“Different regulations apply depending on the jurisdiction where your property is located,” said Dale House, director of Coldwell Banker Property Management for the Mid-Atlantic Region. “In D.C., every landlord has to have a basic business license because renting out your home is considered an unincorporated business. Northern Virginia doesn’t have any licensing requirements, and in Maryland, the regulations depend on which county you are in.”
Mr. House said certification that a property is free of lead paint is required throughout Maryland on homes built before 1950 and in Montgomery and Prince George’s counties, a license or registration is required for landlords.
Homeowners can research regulations themselves on their local government’s website, or they can work with a Realtor or property-management company.
Mr. Pasquini said homeowners can market their property on rental websites or places such as Craigslist or choose different ways of working with property specialists.
“While handling the rental yourself is the most economical, it can be harder to screen an applicant on your own,” Mr. Pasquini said. “You can work with a Realtor to list and market your property, handle the lease negotiations and do a background check and a credit check on applicants.
“The Realtor will charge a commission to the landlord, typically one month’s rent.”
Mr. Hager said a real estate company typically will charge an application fee to prospective renters, check references, verify employment and do a background and credit check on behalf of the landlord.
The third option is to work with a property-management company that not only will handle the initial marketing and tenant-approval process and lease negotiations but also will collect the rent and maintain the property for a fee. Mr. Pasquini said the fee typically ranges from 8 percent to 11 percent of the monthly rent.
“Hiring a management company provides convenience and can be especially good for homeowners who are leaving the area because a landlord has to be responsible for repairs and maintenance issues,” Mr. Pasquini said.
Once the homeowners have decided how to handle their rental, they will need to prepare their property for tenants.
By Tom Harris and Madhav Khandekar
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