Renting Your Home

Is Live-In Landlord Life for You?

The Washington, DC area is known for many things — beautiful cherry blossoms, a great dining scene and so much more…but an affordable housing market is sadly not one of them. With cities around our region regularly ranking high among U.S. locales for average home prices, many homebuyers need help nabbing their piece of the market, and one strategy for many is seeking a home that allows for rental income that helps offset the mortgage.

Being a live-in landlord or owning investment properties that you lease out requires research, reading up and planning, but it may be an option for you or someone you know. There are two primary owner-occupied options we see in our neck of the woods:

  1. Multi-Unit Properties: A multi-unit has two or more independent units allowing for multiple individuals/families to have distinct homes in the same building. You likely are familiar with the terms duplex and triplex, which are two- and three-unit properties.

  2. Shared Single-Family Homes: If your home is larger enough to welcome one or more person, you may elect to have a roommate. The roommate could have their own separate area of the home, like a lower level, or simply occupy a bedroom with shared bath, kitchen, etc.

In either of these types of homes, you can choose to have longer-term tenants with leases or you may opt to welcome someone on shorter, more flexible terms through Airbnb or another platform. We’ve especially seen an increase in these among Millennial homebuyers. But, before you count your leasing income on that future home, here are a few things to keep in mind:

  • Remember Income is Not Guaranteed: If you are only able to make a property work for your budget by renting, make sure you have a contingency fund and plan if market conditions change. You may need a buffer between tenants (and won’t have income for a period of time), see demand fluctuate (as we saw when a large number of college age students returned home during the pandemic and no longer were seeking off-campus housing, resulting in less demand and depressed prices) and/or (but hopefully not) run into tenants who can’t or won’t pay. So, know your numbers and have savings you can fall back on to ensure you can pay your mortgage if the income decreases or stops.

  • Understand the Rental Market: You may have recently been a renter, so put your tenant cap back on for a bit. What are your target renters looking for? As a result of the pandemic, for example, more people began relying on personal vehicles over public transportation, so is there off-street parking and, if not, how easy is to park on the street? Another consideration is that secondary units are often in lower levels of homes, which are inherently less desirable than above-grade units. When you take all of this into account, you can best price your unit to find a tenant quickly.

  • Know the Law: Every jurisdiction has laws that guide housing and rentals, with a focus on protecting tenants and their rights. (DC is notorious for being the most tenant-friendly jurisdiction in the U.S.) You’ll want to ensure the space you intend to rent is legal to rent, know what registrations and licenses you may need (and how much they cost) and understand regulations regarding important things like managing security deposits. As a reminder, laws are constantly evolving and you need to stay on top of those changes. One of the most recent changes that has impacted many owners limits short-term rentals for non-owner occupants but also introduces the need for short-term landlords to register with DCRA.

  • Be Prepared to Handle Issues: As the landlord, the responsibility falls on you to address any issues — from a broken toilet to pesky pests. This means, just as any homeowner should, you want to ensure you have funds to pay for fixes and upgrades, as needed, and ensure you make yourself available and responsive to the concerns of your tenant(s). If this gives you anxiety or is not consistent with how you want to live, landlording may not be for you. Of note, landlords who don’t share properties with their tenants sometimes will hire a professional property manager for this purpose, but that comes at a cost and is likely not a fit when you’re on site.

  • Talk to a Tax Professional: As you add another income source, you’ll want to ensure you account for that appropriately on your taxes. Make sure to talk to your CPA.

Do you think sharing your home may be right for you or your path to homeownership? Reach out and let’s dig in, crunch the numbers and see!

Amber Harris is the owner of At Home DC, an interior decorator and a licensed real estate agent with Keller Williams Capital Properties working with clients in DC, Maryland and Virginia.

Become a Landlord or List?

It is rare that a person’s first home purchase is their “forever home” for a variety of reasons — from the cost of entering the market (especially in pricier markets like DC) to ever-evolving needs (as people marry, divorce, have children, grow older, etc.). When you make that decision that it’s time to find a new home, you also may have to decide if you want to keep your current home or find a new owner…and that can sometimes be an even tougher decision.

If you have paid off or down the mortgage on your first property, you may be in a position to buy your next home without selling (either your cash on hand and DTI ratio will allow or you may be able to apply some of the equity in your current home to help purchase your new home). When that’s the case, you are going to want to ask yourself a few key questions:

  • Do I want to be a landlord? If the answer is a definite “no,” proceed ahead talking with your agent about the best way to maximize your exit from your current property (considering timing and the three P’s). Similarly, if you live in a condo or coop that won’t allow you to rent out your unit (perhaps there is a blanket restriction or a limit on the percentage of units that can be rented), get ready to sell. However, if the answer is “maybe” or “yes,” proceed to the next question.

  • How will being a landlord impact my bottom line? If you have an outstanding mortgage, use that as the base for figuring out your break-even costs. Then take into account additional recurring costs, like condo and HOA fees, ongoing maintenance and paying a property manager (if applicable). Next, compare this to the going market rate for similar rental homes (have your agent gather comps for you and make a recommendation). If the carrying costs exceed or are close to your carrying costs, are you prepared to subsidize the difference to maintain ownership of the home? Also, don’t forget to keep in mind that your home will most likely not be rented 100% of the year and you will have costs to clean and prepare the home for the next tenant(s). Be conservative and calculate a 70-80% utilization if finances may be tight and re-run your numbers.

  • How will this impact my lifestyle? If you can’t afford to hire a property manager (or prefer not to), are you prepared to play that role, potentially getting late night calls when something goes wrong? If so, will you be local and be able to be hands on to ensure repairs are completed and handled in a timely manner? What if you run into larger issues with your tenant? For many people, this isn’t a bother at all. Thinking about how finances impact your lifestyle, if you will be running in the red to maintain ownership, don’t forget to consider how this will impact your purchasing power for your new home and your budget for daily living.

  • What are the potential long-term financial implications? Real estate is an investment and often the largest source of wealth for people. If you are more risk-adverse, real property can feel like a safe way of saving money (in fact, it is forced savings). However, if you prefer to play the stock market or identify other opportunities to invest, you may be able to put proceeds from a sale to a higher and better use. This is very personal consideration and there are no guarantees on returns in any investment, so engage your financial advisor to model out potential scenarios and choose what fits your risk profile and investment strategy. If you’ve dreamed of becoming a real estate mogul, this could just be the first step!

These are just a few of considerations I discuss with my clients during our one-on-one consultations. Being a real estate agent is about more than selling houses; it’s about helping people make their best housing and life decisions. There’s no singular best conclusion, but by enlisting the help of subject-matter experts — from your CPA and financial planner to a local Realtor — you can best discern the right path to your happiness at home.

And a shout out to Pearl and all the landlords out there…may you never have a tenant like this:

Amber Harris is the owner of At Home DC and a licensed real estate agent with Keller Williams Capital Properties working with clients in DC, Maryland and Virginia.