Real Estate

The Reluctant Landlords

Homeowners put their white elephants up for rent.

From Kiplinger's Personal Finance magazine, February 2010

After being appointed Secretary of the Treasury in 2009, Timothy Geithner moved to Washington, D.C., and tried to unload his $1.6 million home near Larchmont, N.Y. No sale. So last summer Geithner joined the growing ranks of accidental landlords.

Finding a tenant is one way to subsidize the wait for housing prices to improve if you don't want to sell at a loss. But it's not easy: Rental stock has multiplied, vacancies are up, and rents are under pressure.

A management company can clue you in on what to charge and handle the details. You typically pay a property manager as much as one month's rent upfront, plus another 5% to 10% of the rent each month. Find a manager at www.rentalhomepros.com, a listing service offered by the National Association of Residential Property Managers. It's critical to conduct a thorough background check on prospective renters. Managers will screen tenants, or you can do it yourself through companies such as First Advantage SafeRent Services (www.fadvsaferent.com), which charges an annual fee of $40 and sells packages of various reports, priced from $15 to $56.

Rental income is taxable. But you can deduct a long list of expenses, including mortgage interest, real estate taxes, depreciation, condo fees, advertising, professional fees, repair costs, travel and insurance. Speaking of insurance, you'll need a landlord policy. It costs about 25% more than a standard homeowners policy, but it covers structural damage to your home as well as any lost rental income that results. Plus, it covers legal fees—just in case your tenant sues you.

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