Well, should you? And how can you know for sure?
Every day someone is faced with the decision of whether renting their home in Nashville is a good idea. You may be faced with this decision for many different reasons.
In hot real estate markets, like Nashville, this question may be based on a couple of decisions. It may be whether you would like the extra rental income or you plan on keeping it in the family for some reason.
In slower real estate markets, this issue is the question facing homeowners that are not able to sell their home.
Regardless of the reason, this question has very real and significant effects on your financials and should not be taken lightly.
Through the rest of this article, we will review the positives and negatives of renting your Nashville property. We will finish with risk factors that must be considered.
Many positives exist for the Nashville landlord, but before getting carried away, remember that the rental property industry traditionally is not a highly profitable industry immediately, but is very effective in building wealth for the long term. If you’re looking for a way to make a return in real estate faster, you will need to learn how to flip properties in your area. Here are the positives of renting your house Nashville home:
Through the monthly rent payment, the landlord creates an additional “passive” income stream. This additional income can be used for multiple purposes. Such as, paying holding costs for having the property or growing additional equity in the home by making larger mortgage payments. How this is used, is up to the landlord.
Many landlords use Nashville rental real estate as a cornerstone of their retirement portfolio. You can do the same. Your home can be the start of a Nashville real estate portfolio that generates significant passive income into your golden years.
Real estate is one of the best tools to use the principle of leverage to grow your assets at a faster rate.
In many circumstances, you may simply need additional holding time to achieve your goals for the property. Renting the home may be the answer to this need.
By holding the property for additional time, you may be able to benefit:
To help increase the availability of rental property, the government has built-in incentives for landlords that are in addition to the standard mortgage interest deductions. Some examples of these incentives are below (we’re not tax professionals so make sure you check with one first!):
1. Writing off your Nashville rental property’s expenses against your income
2. Tax-favorable treatment upon the sale of the property (ex. 1031 exchange)
A false belief that many new landlords have is that the tenant will maintain the home as well as the homeowner would. 90% of the time, this is simply not the case.
Tenants are generally harder on the home and not as attentive to the unique needs of the home. Clearly outline expectations with potential tenants.
But the landlord also needs to align his/her expectations. It’s helpful to understand the average life expectancies for certain home repairs and equipment.
You will want to maintain a larger fund for your rental home’s unexpected repairs or default in rent payments.
The landlord is responsible for maintained habitable living conditions at all times. Any repairs that need to be made to maintain these conditions must be completed within a timely manner or the tenant may have a case for recourse against the landlord.
Not having the funds to make the repair is not an excuse. For the homeowner, when you have something that needs to be repaired, you can simply determine and rank the importance based on your ability to pay for the repair.
This isn’t the case when you become a landlord. Your tenant will expect (and rightfully so) that repairs will be made in a timely manner.
When you own rental property, understand that this is a business venture with specific laws surrounding it.
You will want to keep a clear record of all of your expenses and consult tax professionals to ensure that you are reporting everything properly and gaining every advantage afforded to you.
Also, realize that there are many laws surrounding the selection of tenants and the management of interactions with them. Make sure that you read and understand these laws, both federal and local Tennessee laws.
The last things that you want is a lawsuit due to your violation of Equal Housing Opportunity laws or Tennessee Landlord-Tenant Statutes.
When you are a landlord, expect to be the person that receives phone calls regardless of the day or time.
If something breaks, you need to have a process for seeing the issue through to completion. You have the responsibility as listed above for following additional laws.
You are responsible for finding, showing and leasing the home. And if all of that is not enough, you are the go-to person for collecting rent when the tenant fails to pay on time.
When I first started to rent houses, this was the biggest adjustment I had to make. I’ll never forget receiving those calls at 2 am because a water leak had caused the ceiling to fall on one of my tenants while she was asleep. As you can imagine, that was not a pleasant phone call!
Before rushing into the decision to rent your home, first, make sure that an initial outlay of capital is not required to get the home in marketable condition.
Even though the Nashville rental market is hot, a sub-par product will not rent due to the other competition. It may take additional funds to get your home to a marketable condition. We explain to our owners that if a house sits on the rental market for a period of time, there is either a price or product problem.
This is one of the two largest fears a homeowner has when asking, “Should I rent my Nashville home?”.
If a tenant trashes your home and leaves you with a large rehab job before you can rent it again, it becomes a frustrating circumstance.
Even if the tenant pays rent every month, they still may cause damage to the home. As a matter of fact, based on our experience, a rental house will need work performed about 90% of the time before you rent it again. You must plan on this happening and be happy when it does not.
This is the second of the two biggest fears a homeowner has when considering whether or not to rent their home.
A tenant that pays late, does not pay, or must be evicted is also a risk that should not be ignored. This can cause financial issues if the landlord is not ready.
You might suffer months of no income. Rehab costs to get the home rent ready again. The cost to evict a tenant. The expense of marketing a home. All of the costs add up…and don’t forget your time…that’s worth something, right?
Worst-case scenarios can have compounding effects. Make sure that you do not put yourself in position so that one negative event can turn into 2 or 3 negative situations in your financial life.
An example of this could be you having a significant decrease in your monthly income and, consequently, not being prepared to absorb a second negative occurrence involving your rental home. If you could not handle a repair call or vacancy during this time because your budget is too tight, you may need to re-think renting your home.
Before renting your home, make sure that the extra holding time will be beneficial to you. Look at the trends in your neighborhood and decide whether you believe the property value will increase or decrease during the additional holding time. If it will decrease, it may be time to sell and look in other locations. This is extremely important in larger cities like Nashville.
Before renting your home, be aware of impending maintenance items that will be required.
A new roof or replacement of an HVAC unit should not come as a surprise and should be planned for. If any of these repairs are seeming likely in the near future, make sure to include that in your calculations and reserve funds.
In summary, realize that there are many things to consider prior to flippantly deciding to rent your Nashville home. One poor or miscalculated decision can cost you dramatically. Ask the right questions and use your best judgment.
If your due diligence is thorough and all signs point to ‘yes’, you are well on your way to owning a portfolio of profitable Nashville rental homes.
There you have it. I hope this article has been helpful if you have ever wondered, “Should I Rent My House In Nashville?”
Matthew is the CEO of Evernest. He is a student of the book Good to Great and is passionate about building the best property management company on the planet (and maybe even the universe if Elon Musk will hurry up). You can usually find Matthew at the baseball field with his son, at a dance recital with his daughter, or at his favorite restaurant with his wife, when he’s not in the office. And if you can’t find him in any of those places, it probably means he’s traveling.