“Accidental landlord” became a hot-button term as the housing markets crashed. 
An accidental landlord is defined as someone who moves into a new home, and whether out of necessity or by choice, rents out their previous home instead of selling it. This is a viable option for those who are willing to wait for the real estate market to pick back up so that they do not lose money on their property. However, being a landlord is more difficult than one might think. It involves a lot more than picking up a rent check once a month. The following tips from Forbes will help you work out the logistics of being an accidental landlord so that you can decide whether or not it is the best decision.
This first step is a must and many potential landlords have realized the hard way that potential obstacles exist that prevent the conversion of a primary residence to rental property status. Be sure you obtain a copy of the covenants, conditions, and restrictions prior to listing the property for rent as some homeowner associations restrict rental properties. It is also advisable to make sure the mortgage does not have any restrictions against renting the property.
First, ensure that you are lawfully able to become a landlord. When you change your insurance policy from homeowners to landlords, this will notify the bank of your change and could lead to legal troubles if renting is disallowed in your mortgage.
Secondly, you should establish whether or not it is totally feasible to be a landlord. If you will be out of the area a lot of if you aren’t familiar with landlord laws, then this may become more of a drain than a benefit.
Establish rental criteria in advance. If you find yourself transitioning to the role of accidental landlord, keep in mind that you must manage your investment property like a business. Stay abreast of fair housing requirements and landlord-tenant laws in your area. Too many novice landlords make the mistake of being too trusting upfront. You can prevent this by doing credit checks, calling past landlords or employers, and checking references. Just be sure to comply with local laws and avoid getting yourself in trouble by following Federal Fair Housing Laws (available at hud.gov).
Without proper planning, renting out your home may actually be more detrimental to your finances that positive.
There is more to think about than the immediate impact on your cash flow situation. If you eventually plan on selling the house, include extra costs into your budget to prepare the property for the real estate market. It is no secret that your renters may not treat your home with the same TLC that you would devote to the property- there is simply less of an emotional and financial investment at stake.
You will need to set aside extra money for repairs, since it is likely that your tenant will be less respectful towards a home that they do not own. The Forbes article encourages accidental landlords to increase their emergency fund by 3 to 6 extra months.
Do not enter into contracts with your tenants that you will not be able to keep. For example, you cannot break the lease as soon as the market improves. You need to be both financially and emotionally ready to become a landlord.
If you need assistance changing your insurance policy, please contact the agents at TJ Woods Insurance. We would be happy to help you through your unique situation.
Do you think that it’s a better idea to become an accidental landlord or to sell the house for a lower price and not have to deal with the rental process?
