Can't sell your home? Rent it

A homeowner who is able to sell a property at the asking price has the potential to reap a profit, but what happens when an individual is having trouble unloading a property? In this case, it might make more sense for the homeowner to keep the home, but rent it out to cover the bills.

But wait. If you're considering renting out a property rather than getting rid of it, know that this isn't a quick-fix option. There are benefits to becoming a landlord, but there are also a number of very costly pitfalls. Read on to find out when it pays to rent out your property and how you can cash in.

The benefits of renting your abode

There are a number of reasons why a homeowner may prefer to rent out his or her home:

A sluggish economy: In a sluggish local economy, the odds that the homeowner will receive a bid close to the asking price are not likely. Renting out the home will provide the homeowner with supplemental income, while also providing some time in which housing prices may rebound. This would allow the homeowner to get a better price for the house when he or she finally does sell.

Property upgrades: If the property could use some improvements before it is sold, renting it out could provide the time and income to do this. Repairs are generally tax-deductible for rental property owners.

Life upgrades: Homeowners that own their homes outright (their mortgages are already paid off) may find that renting out a home in a slow real estate market can provide financing for another venture.

Market timing: A homeowner might want to rent while holding out for a higher profit on the sale of the home. Suppose an owner would like to sell his home and could do so now for a small profit. But he thinks that six months down the line, the demand for property could increase dramatically, resulting in a higher selling price.

In this instance, renting out the home for those months may help cover some or all of the mortgage and taxes, while providing the homeowner with a chance to sell at those later numbers.

In these instances, a renter provides income to cover the homeowner's mortgage while the property is being worked on, or until the economic cloud lifts. This way, the homeowner can reap the benefits both of renting and of selling the property.

The drawbacks of being a landlord
Renting a home isn't always as simple or as glorious as it sounds. In fact, there may be a few sticking points to consider.

Some examples of renting negatives include:

• Having strangers in your home. Many people don't feel comfortable about this, and it will generally add stress to their lives.
• Being a full-fledged landlord isn't always an easy task. There will be regular maintenance that needs to be done on the property, and you (as the owner) are responsible for it.
• Some renters may not pay their rent on a timely basis - or at all - leaving you covering costs and payments in their absence.
• Property taxes tend to rise over the years, which could have an impact on profit.

Renting your home in five steps
Despite the added work and stress, you may still want to bring on some renters. If so, let's take a look at a few tips that should help make the process easier and more profitable.

Study the market: Check local newspapers and with local realtors to see what comparable homes/properties are renting for in the neighborhood. This should help you establish a fair rental price.

Prep the home: Renters may not take care of the home or its furnishings; therefore, the owner might consider removing breakables and personal items so as to avoid damage and potential arguments.

Find a renter: Consider advertising in local newspapers, in the brochures and bulletins found in supermarkets, and on website classifieds. The idea is to try to get as many people to view the rental details as possible, so that you are left choosing your renter, rather than having to go with the only renter who expresses interest in your place.

Interview: Consider meeting with the potential renter rather than simply dealing over the phone. Knowing who will inhabit your home may put your mind at ease and help you weed out unsuitable candidates.

Spell out the deal: You should consider contacting an attorney (particularly one that specialises in real estate) to help see you through the rental transaction. The lawyer should be able to provide or help draft a rental agreement/contract. Consider any stipulations you want in the paperwork (like late fees, lease terms, payment due dates, etc.) and make sure that the attorney includes those items.

Bottom line
When a homeowner is having trouble selling his or her home, there are some cases where it may make sense to simply rent out the property while waiting for conditions to change. However, when doing so, owners should do their homework and check going rental rates, prep the home for renters, and make sure they have a binding legal contract.