Issues for Landlords
Before you consider converting your home into a rental property, in addition to understanding the tax issues we just discussed, also weigh the following:
How do you feel about being a landlord? Managing a rental property takes time, patience, and knowledge of local rent-control laws. Some tenants are a pain, and premises occasionally need repairs. You can hire a property manager, but this service costs money, and finding a good one can be a challenge.
What about wear and tear? If you've gone to great lengths to make your house immaculate, realize that renters aren't going to treat your home with the same loving care that you gave it. Although you can protect your interests somewhat by securing from your tenants a large security deposit (at least one month's rent), you can't expect them to pay for the inevitable and gradual wear and tear. For documentation purposes, you may also videotape the interior of the rental, including the condition of floors, walls, and so on. Beware, though; you may find that, at the end of the lease, your tenants disagree with you over what you think is unreasonable wear and tear.
What's the cash flow? Tally up all the monthly property expenses that you anticipate and compare that amount with the expected rental income. If you've recently bought your property or have little equity in it, you may be unable to turn a profit. The worst case scenario is that the additional monthly cash drain cramps your budget and causes you to accumulate consumer debt.