Worth Renting Primary Residence?

Question

New to the forum and have never been involved in renting personal property before. I built a home in 2006, refi a year ago and my monthly payments PITI is 844/month. I have been approached by a friend to rent my home with his family for 1020/month. A few things, they say it will be 1-2 years rent, before they want to buy something else bigger. I plan to move into my parents home rent free initially and eventually buy a new home. Just curious on what else i might consider, positives and negatives. I'm going to ask for a 1 year lease up front so I can lock him in for at least that long.

I guess i could move back into my home if they move out or try to put it up on the market to sell or get into the rental business, if I have purchased a new home in that time frame. Just looking for advice, things to consider.

Thanks
Lenwine

I guess i could move back into my home if they move out or try to put it up on the market to sell or get into the rental business, if I have purchased a new home in that time frame.  Just looking for advice, things to consider.

Thanks
Lenwine

David Beard · Answer

This sounds like a loser as a rental (read up on the 50% guideline which states that half of your gross rent will be consumed by expenses and vacancies over time.)  You will likely have no positive cash flow after making an allowance for repairs.  If you want to buy another house, and you're not underwater on this one (actually you may well be if purchased in '06), then sell it before renters trash it.

Lenny Weiner · Answer

Andy,

Thanks for the advice, they are more acquaintances than friends.  I would have them sign a lease agreement and outline all of the expectations and parameters.

Andy Chu · Answer

The first rule to lending money or renting out property is never lender or rent to people you know. Set the expectation of what will happen if they are late and/or stop paying. In this case, get a property manager and have them collect rents.