Rental Property: When Risk Overshadows Potential Profit

Q. I would like to put my primary home for rental for 2 years as I would be working on Mission abroad. I would need your advice whether I should take a property management service company who would lease the house for a profit net of their one time fee of half of the house rent plus 10% of the monthly rental or I rent it out to my good old friend without profit (same amount as my mortgage payment) whom I know would take good care of the house (all I have to worry about is the property tax).



Should I sacrifice the headache I might get from a bad tenant or mismanagement of the property management company, or it is worth it to sacrifice the profit and avoid the headache? Taking all calculations including property tax and gains on rental income, I would have a net profit of $300 a month, that is, if I have good tenants and property manager.

A. I was great to hear from you. You have some very good questions.

You mention that you should clear $300 a month using the property management company. The question is what percentage of the rental amount is that? If your profit is 25% of the rental amount then each month the home is vacant will eat up 4 months worth of profit. Throw in some repairs and your profit may go down significantly.

The answer depends on your financial situation. If you are able to meet your goals with renting it to strangers then you should strongly consider renting it to someone your trust.

What type of mission work?

Q. Thank you for your email.
I recalculated everything again and came up with different scenarios.

The best scenario is to have good (no guarantee) tenants and a reputable property manager (no one could recommend a good one) and still have 15% profit of the rental amount.

The worst scenario is to have (maybe) bad tenants and a property manager that would just eat my profit with his fees and unknown repairs as their agreement do not indicate the limits of repairs and purchases that they could procure on owner's behalf (except extraordinary repairs of $15,000 and above where it is mentioned that approval is needed from Owner).

This is my primary residence and even if I go on mission (I work for the United Nations Field Missions for Programme Development), I can manage to pay the mortgage payments. Do you think it is worth to take the safe side and rent it to my trusted friend who would pay the same amount of my mortgage payments?

How come I have been reading articles on the Internet about the "glory" of having a rental business or renting a house as a good investment? Am I missing something here?

A. I would stick with your friend, it's not worth the risk.

Rentals can be a good investment if you can do the management and the maintenance yourself.

Your posted comments on this and other questions are welcome.
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