1. Does it make sense financially?
Start by preparing a detailed budget, your budget should account for all income and expenses associated with renting out your home, together with the costs associated to renting or buying your ‘new’ home. Items to consider can include but not limited to – Landlord and Building Insurance, Rates and water, possible negative gearing, maintenance, repairs including smoke alarms and other compliance’s and the cost of a professional Property Manager.
Renting out your property is essentially turning it into a business, and you have responsibilities as the business owner to make sure it is adequately resourced, funded and fit for purpose.
Creating this budget will quickly show you if renting your property out is an option that is financially feasible; which may reveal the best course of action.
2. Is there is the rental demand for your property?
Before putting your home on the rental market, you need to do some research and find out what the rental demand is in your area and see what the average rent level is. This is an important part of your budgeting process. If rental demand is low and/or vacancy rates are high in your area, that’s not good from a financial perspective.
The best way to find out where your property is sitting in the rental market and its potential rental return is speaking to a local Property Manager/ Real Estate Agent.
3. Is there good potential capital growth for your property?
While there are no guarantees when it comes to predicting price movements, there is enough information out there that can give you a good indication of what to expect. If the market is expected to remain buoyant with strong demand, and it is likely to be maintained for the near future, this indicates that it might be in your best financial interest to hold onto your home so you don’t forgo any future capital gains.
On the other hand, if the market has reached its peak, or is nearing its peak, it might be a good time to sell, especially if there’s some uncertainty over how long you’ll have your property in the rental market and whether you want to return to the same property.
In other words, bank your tax free profits now rather than risk them when you return.
4. Is the property appropriate for renting?
Your home must be habitable, safe and free of any defects that may adversely affect the enjoyment and use of the property by your tenants. You may need to do some repairs and maintenance work on your property to bring it up to marketable standards, not to mention to meet your legal responsibilities.
This will cost money, so you will need to decide on whether it’s best to invest or sell based on affordability and commercial considerations.
5. Is being a landlord for you?
Property investors are usually objective and detached emotionally from the property they’re renting out, otherwise mistakes can be made and financial returns adversely affected. Of course, if you’re planning to come back to this home in the future, then the strategy of renting out your home might focus on maintaining your asset and earning some cash to cover the holding costs while you’re away, rather than maximising investment returns.
If you think you’ll have major emotional problems with renting your home out to a stranger, selling the property might be the best option.
Our last tip – Know the rules, understanding your rights and responsibilities as a landlord are essential to ensure you don’t land yourself in a very costly and potentially embarrassing situation. Taking the time to keep up to date with basic legislation; it’s important to know what you can and can’t do and more importantly what happens if things go bad.