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By Rajkamal Rao
See Also:
Section 6a. Where in India do you want to move to?
Section 6b. Buy or Rent in India?
Documents Needed by NRIs to Obtain a Housing Loan
In the US
If returnees own homes in the west, they face two options: sell or rent them out. For returnees who rent, closing life down is simply a matter of cleaning out your rented home and reclaiming your security deposit.
But if you own a home, what should you do?
One answer is to sell your home and if you decide this option works for you, your realtor can give you valuable advice about what to expect for your home and how to market your home for sale.
But selling may not always be practical. Depending upon where you live, you may lose money on the sale especially after accounting for realtor commissions. You may like to hold on to your home for emotional reasons or if you are not sure of your India relocation decision. [This way you will have a home to return to]. Or you may want to own a home in the West to be able to pass it on to your children should (and when) they decide to return to the west.
No matter what your motivation is to not sell, the next step is to consider if renting your home out is a good idea. In general, the rental market has held up well in the US - even during the depths of the financial crisis - as more former homeowners could no longer stay in their homes and sought rental homes to move to. Renting could give you a steady income stream (especially if your home is close to being paid off) or could help underwrite your mortgage payments. And renting gives you special tax benefits - such as being able to deduct repair expenses - that you won’t get as a homeowner living in your own home.
But turning into a landlord has its pitfalls. You’ll probably need to hire a property manager to manage your property when you are away - in fact, most states require you to have someone locally responsible to take care of repairs and maintenance. Property managers typically demand 10% - 15% of your monthly rent as fees. You will still be responsible for your mortgage, landlord’s insurance (which is different from homeowners insurance and in general costs slightly higher for the same coverage), homeowners association fees and property taxes. Most returnees who rent their homes buy a home warranty plan which is a service contract that covers the repair or replacement of many of the most frequently occurring breakdowns of home system components and appliances. These warranty plans add to your cost. Finally, you may not be ready to take on the responsibilities of a landlord. When things go bad on your rental (nonpayment of rent, frequent turnover of renters, potential eviction of a delinquent renter, etc), how ready are you to face consequences? Especially when you are 8,000 miles away?
Getting the right renter - who is willing to stay long term in your home and can be trusted to take good care of your property - can be the real deal clincher, even if the rent is below market. An idea that is worth considering is borrowed from the finance industry’s swap business: Rent your home to another owner who is well known to you, and have him rent out his house to a third party, but you collect the rent.
Here’s how this would work. Suppose your neighbor’s home is smaller than your home and he has always looked to move up to a bigger home but has not been able to. You strike a deal with your neighbor: have him move into your house for free, get him to rent his house to a third party and manage his renter, but you collect the rent on his house.
Both you and your neighbor win in this process. He gets to move to a bigger house at no extra cost while he continues to build equity on his home, as you would too. You get someone trusted to move into your home, a regular rent check (although smaller than if you had directly gone to market), no headaches of managing the third party tenant and no property manager costs. When the third party tenant leaves, your neighbor will quickly find another tenant because your agreement would stipulate that if his house is empty for more than 30 days, your neighbor must make rental payments to you! This would be a double whammy for him (paying his mortgage and paying rent to you) - so he will find someone quickly. Because you are outsourcing the day-to-day landlord duties to your neighbor in return for lower rent, both parties benefit.
You enjoy other advantages. You could work with your neighbor to receive your mail in your absence at the same address so that you don’t have to confront problems regarding change of address. [This is hard to do if you were to rent out to a third party whom you don’t know]. Or you could get your neighbor to rent you back some space for free for storage, in the garage, for example - and keep some of your goods there - and save on storage costs.
There are additional creative ways to structure incentives and penalties. You and your neighbor could decide what the “base rent” for his property is. [This is the minimum you are willing to accept that his home would rent to a third party for]. In order to incentivize your neighbor to rent his home out for the highest amount possible, you could share part of the difference (say, 40%) with the neighbor. Let’s say the "base rent" is $1,250. If your neighbor manages to rent his property out for $1,375 (through better marketing, better maintenance of his home, etc) you agree to pay your neighbor a $50 bonus each month (40% of the $125 difference) and you keep $75 (60% of the difference).
In India
Once in India, returnees have three options: stay in an existing home, buy a new home or rent. We will examine these choices carefully.
Section 6a. Where in India do you want to move to?
Section 6b. Buy or Rent in India?
Documents Needed by NRIs to Obtain a Housing Loan
See Also:
Section 6a. Where in India do you want to move to?
Section 6b. Buy or Rent in India?
Section 6b1. Renting property in India
Section 6b2. Buying property in India and financing a home purchase
Buying into a New Development from an Established Builder Section 6b2. Buying property in India and financing a home purchase
Documents Needed by NRIs to Obtain a Housing Loan
In the US
If returnees own homes in the west, they face two options: sell or rent them out. For returnees who rent, closing life down is simply a matter of cleaning out your rented home and reclaiming your security deposit.
But if you own a home, what should you do?
One answer is to sell your home and if you decide this option works for you, your realtor can give you valuable advice about what to expect for your home and how to market your home for sale.
But selling may not always be practical. Depending upon where you live, you may lose money on the sale especially after accounting for realtor commissions. You may like to hold on to your home for emotional reasons or if you are not sure of your India relocation decision. [This way you will have a home to return to]. Or you may want to own a home in the West to be able to pass it on to your children should (and when) they decide to return to the west.
No matter what your motivation is to not sell, the next step is to consider if renting your home out is a good idea. In general, the rental market has held up well in the US - even during the depths of the financial crisis - as more former homeowners could no longer stay in their homes and sought rental homes to move to. Renting could give you a steady income stream (especially if your home is close to being paid off) or could help underwrite your mortgage payments. And renting gives you special tax benefits - such as being able to deduct repair expenses - that you won’t get as a homeowner living in your own home.
But turning into a landlord has its pitfalls. You’ll probably need to hire a property manager to manage your property when you are away - in fact, most states require you to have someone locally responsible to take care of repairs and maintenance. Property managers typically demand 10% - 15% of your monthly rent as fees. You will still be responsible for your mortgage, landlord’s insurance (which is different from homeowners insurance and in general costs slightly higher for the same coverage), homeowners association fees and property taxes. Most returnees who rent their homes buy a home warranty plan which is a service contract that covers the repair or replacement of many of the most frequently occurring breakdowns of home system components and appliances. These warranty plans add to your cost. Finally, you may not be ready to take on the responsibilities of a landlord. When things go bad on your rental (nonpayment of rent, frequent turnover of renters, potential eviction of a delinquent renter, etc), how ready are you to face consequences? Especially when you are 8,000 miles away?
Getting the right renter - who is willing to stay long term in your home and can be trusted to take good care of your property - can be the real deal clincher, even if the rent is below market. An idea that is worth considering is borrowed from the finance industry’s swap business: Rent your home to another owner who is well known to you, and have him rent out his house to a third party, but you collect the rent.
Here’s how this would work. Suppose your neighbor’s home is smaller than your home and he has always looked to move up to a bigger home but has not been able to. You strike a deal with your neighbor: have him move into your house for free, get him to rent his house to a third party and manage his renter, but you collect the rent on his house.
Both you and your neighbor win in this process. He gets to move to a bigger house at no extra cost while he continues to build equity on his home, as you would too. You get someone trusted to move into your home, a regular rent check (although smaller than if you had directly gone to market), no headaches of managing the third party tenant and no property manager costs. When the third party tenant leaves, your neighbor will quickly find another tenant because your agreement would stipulate that if his house is empty for more than 30 days, your neighbor must make rental payments to you! This would be a double whammy for him (paying his mortgage and paying rent to you) - so he will find someone quickly. Because you are outsourcing the day-to-day landlord duties to your neighbor in return for lower rent, both parties benefit.
You enjoy other advantages. You could work with your neighbor to receive your mail in your absence at the same address so that you don’t have to confront problems regarding change of address. [This is hard to do if you were to rent out to a third party whom you don’t know]. Or you could get your neighbor to rent you back some space for free for storage, in the garage, for example - and keep some of your goods there - and save on storage costs.
There are additional creative ways to structure incentives and penalties. You and your neighbor could decide what the “base rent” for his property is. [This is the minimum you are willing to accept that his home would rent to a third party for]. In order to incentivize your neighbor to rent his home out for the highest amount possible, you could share part of the difference (say, 40%) with the neighbor. Let’s say the "base rent" is $1,250. If your neighbor manages to rent his property out for $1,375 (through better marketing, better maintenance of his home, etc) you agree to pay your neighbor a $50 bonus each month (40% of the $125 difference) and you keep $75 (60% of the difference).
In India
Once in India, returnees have three options: stay in an existing home, buy a new home or rent. We will examine these choices carefully.
Section 6a. Where in India do you want to move to?
Section 6b. Buy or Rent in India?
Section 6b1. Renting property in India
Section 6b2. Buying property in India and financing a home purchase
Buying into a New Development from an Established Builder Section 6b2. Buying property in India and financing a home purchase
Documents Needed by NRIs to Obtain a Housing Loan
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