A Guide for Involuntary Landlords

Can’t sell your home and have to rent it out? The pros offer a few tips.

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A spotty housing market has turned some would-be home sellers into temporary landlords because they can't unload their house as quickly as they need to or at the price they want.

The demands of keeping up with their day jobs and the difficulty of managing the property from across town or out of state (or the expense of hiring a manager) add to the complexity. Renting out a property may not be ideal, but neither is leaving it empty for too long.

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"It all comes down to perception for buyers, who understand that vacant homes can suffer from a wide variety of ills due to neglect and deferred maintenance," said agents with Prudential Shimmering Sands Realty in Panama City, Fla., on their blog.

Think turning into a temporary landlord might help you? Educate yourself before jumping in.

For starters, there are big-picture considerations. There's more rental competition because of a soft home-selling market in most locations. To start the year, there were 2.43 million homes for sale, a 6.4-month supply at the current sales pace, according to the National Association of Realtors. But there's also potentially stronger demand for rentals because tougher mortgage standards and a stubbornly high (if improving) unemployment rate prevent some people from buying. Overall, more would-be buyers may be willing to rent if they remain uncertain about the health of the economy.

Collecting rent to offset the mortgage payment on an unsold home can be vital to your monthly finances, especially if you've taken on a loan for the new place. While renting out your home, it may be possible to continue to build equity, depending on how quickly market conditions turn. The S&P/Case-Shiller Home Price Index, a closely followed measure of the U.S. residential housing market, suggests that housing prices may be bottoming out this spring. (It's a good idea to keep your expectations realistic as market performance often varies region by region; remember, there was a reason the home didn't sell on your preferred timeline in the first place.)

Tax considerations. There can be favorable tax advantages for landlords on top of mortgage-interest deductions such as deducting the cost of repairs, property management services, and even qualified travel related to tending to the rental property. Keep in mind, however, that you'll be on the hook for property taxes on your unsold listing.

[See 4 Tax Breaks of Homeownership.]

Sellers are allowed to exclude as much as $250,000 of profit ($500,000 for couples) from capital gains taxes as long as they've lived in their home for two out of the five years leading up to the sale. That gives sellers three years to unload the property from the time they move out. Of course, selling at a loss negates the need to claim capital gains.

One option, although perhaps not the first choice, is to donate the home for a set length of time to a nonprofit that needs office space, for instance. You won't make as much as you would renting it out, but you will potentially avoid an unoccupied home that falls victim to neglect. You could get a tax deduction for the charitable donation, and you'll get the satisfaction of helping out a worthy cause.

Go-slow sale. Some sellers may go for a rent-to-buy option on their home. This is attractive to a buyer who's not quite ready to jump into a long-term commitment or needs this go-slow financing option because he or she is having difficulty securing traditional financing. Time and attention are still required at the old property and a seller will be locked in at today's lower housing prices.

According to Bob Floss, principal and agent with Bob Floss & Son Realty, in Countryside, Ill., outside of Chicago, rent-to-own can be a win-win because it means the two parties are more closely aligned with risk.

Rent-to-own brings an interested buyer into the mix (even if on a delayed basis). Sellers may be more likely to get full asking price. Plus, there's an incentive for the renters to take good care of a property they'll eventually own. In some cases, the buyer/renter pays the seller an option deposit. This money is vested interest in the home and will be fully credited toward the sale.