In Montgomery County, MD, the odds are better that a property will rent faster than sell, although there are more rentals coming on the market because of the difficulty in selling in this changing mortgage market.
For instance, today in Montgomery County, there are 367 single family houses currently for rent. During the last three months, 371 single family homes were rented – so we have a pretty even market or a three month supply of detached rentals.
Compare that to the sales market. Currently 3115 single family houses are for sale in Montgomery County and only 671 sold during the past two months* – that means we currently have a little over a 9 month supply of detached homes on the market.
In condos, there are 218 condos for rent and 207 have rented over the last three months – once again an even, three month market.
In the condos sales market, there are 1188 condos for sale and 305 have sold in the last two months, creating an 8 months supply.
The townhouse market is even more even, 298 townhouses are for rent in Montgomery County and 298 were rented in the last three months.
And currently 1387 townhouses are for sale, while 337 have sold in the last two months, creating an 11 month supply.
Some other things to consider when deciding to rent your property.
You’ll have to rent your property at the prevailing rent, which may be lower than your mortgage payment, particularly if you purchased or refinanced your property in the last couple of years and took out a loan with a high loan to value ratio, such as a 100% loan. But sometimes having to come up with a smaller amount of money on a monthly basis is easier than having to come up with a huge chunk of money if you are upside down with your loan (owe more than the property is currently worth).
You can rent the property on your own or go through a real estate agent. If you rent it on your own, make sure you do a credit, employment and housing check on prospective tenants. And you’ll need to check with the local jurisdiction to make sure you follow whatever registration and inspection rules are in place. Any rental property built before 1952 must have a lead inspection.
If you decide to use a real estate agent, they should handle this and the drafting of the lease for you. To procure a tenant, real estate agents usually charge between one half month to a full month’s rent, but real estate commissions are negotiable.
If you’re moving out of the area, you may want a local property manager to take care of the property for you. The property manager will be the person called when the furnace goes out in the middle of the night. You will be required to pay for the furnace repair, but the property manager can probably negotiate a better repair rate because they have people on call. Property managers charge up to 10% of the monthly rent to manage a property on top of the charge to get the tenant.
If you need to buy a property in another area, a lender will count 75% of the income you receive from rent to offset your debts. They do this to cover for the period of time the property may be vacant.
And when you finally do go to sell your property, you may have to follow local tenant laws, like Takoma Park’s 1st right of refusal where you have to offer the property to your tenant regardless of whether they have the means to buy it. That could delay a sale. I generally advise that it’s best to get a tenant out before putting your property on the sales market.
And if you’re lucky enough to have the price of the property increase while you’re renting it, you may have to pay capital gains taxes if you can’t count the property as your primary resident during two the past five years.
*(I’m looking at two month sales figures because it was two months ago when the mortgage market radically changed.)