Becoming a Landlord: Is it Right for Me?
As you pay your monthly mortgage or rent, have you ever stopped to wonder if you should become a landlord? There are a lot of good reasons to consider entering the landlord-tenant business. For instance, perhaps:
- You already own a house and you're thinking of taking in roommates to pay rent,
- You've inherited a family home and are considering renting rather than selling, or
- You bought a Portland-area condo or home, but now you're moving and might want to rent out your place
Becoming a landlord can be a great way to boost your income and build some long-term equity in the Portland area's booming real estate market. Here are some important things to know before deciding if it's the right step for you:
Learn the Legal Ropes
As soon as you rent out an apartment, condo, or home, it becomes a business. That means that the state of Oregon and your county, mortgage lender, and the insurance company may have some special requirements.
- Lease Agreements: You'll need to include specific terms and disclosures in your tenant contracts, such as policies about smoking on your property. It's also a good idea to become familiar with tenant eviction and anti-discrimination rules. And be sure to check out sites like Nolo and the Oregon State Bar Association to stay informed.
- Landlord Insurance: Landlord insurance is different from renter's insurance, which is something your tenants buy to protect their own belongings. Ideally, your landlord insurance will cover the replacement costs of property damage due to natural causes or tenant damage. Ask your insurance company whether you need this special type of policy.
- Mortgage Rules: If you bought a condo or house as your own residence, then later decide to rent it out, check in with your mortgage lender. Your loan may include an "owner-occupier" restriction, and you may have to wait for it to expire before you can bring in tenants.
Be sure to speak with an attorney for business, property, and tax advice before making your final decision to become a landlord.
Becoming a Landlord: Can I Afford It?
There's no exact formula for determining whether you're financially ready to rent out property. However, here are some key factors to keep in mind:
- Qualifying for a Mortgage: If you're taking out a new mortgage and planning to turn the house or condo into an investment property, discuss any special requirements with your lender. And if you're taking out a second loan to buy a rental, be sure that you can reasonably afford both mortgages.
- Your Debt Level: Lenders review what's called your debt-to-income ratio — or how much you owe to others versus how much you earn — before approving you for a home loan. If you have a significant amount of debt, you might need to pay some of that off before applying for a mortgage. In certain cases, the lender might include rent from prospective tenants as part of your income when considering you for a mortgage.
- How Much to Charge in Rent: Research rental prices for similar homes or condos in your area. Check online mortgage sites, real estate agents, and your local banker to get a good idea of the landscape.
- Plan for Other Expenses: That rental income piling up in your bank account may look sweet, but you also need to cover expenses like property taxes, routine upkeep, and possibly utilities. Earmark 35-45 percent of your rental income for these ongoing costs.
If you're a first-time landlord, consider starting with a single-family home or a duplex (where you live in one of the two units) rather than a multi-tenant building. Dealing with just a single tenant and property gives you more time and flexibility to learn about the paperwork and rules related to being a landlord.
There are many places you can turn to for help if you're still wondering if becoming a landlord is the right move for you.
- City of Portland: Offers online landlord information; the city also plans to offer landlord training classes in 2019.
- Portland Area Rental Owners Association: Sponsors meetings, newsletters, landlord helpline, and more for members.
- Multnomah County: Download Rent Right: A Guide for Landlords & Tenants
Learn more about which financial tools best fit your needs when it comes to making big decisions such as becoming a landlord.