Some home sellers who used their equity to buy a replacement home and then got caught in a declining market are wondering if they should lease Home No. 1 until home prices rise again instead of selling now.

Leasing the home should provide enough income to cover the usual expenses - mortgage, property taxes, insurance, routine maintenance - and a reserve fund for major repairs that you may not have anticipated, preparing the house for tenants, and managing the property. You will have to decide whether to manage the property yourself or hire a property management firm to do it. There are pros and cons to both.

Before you decide whether to hire a property manager, take some time to study the local market. Read the “house for rent” classified ads in the local newspaper and Pennysaver, study rental magazines, search online, and look for “for rent” signs to determine how much houses like yours are renting for in your neighborhood.

Now look at your house. Is it in “move-in” condition? Have you fixed everything that needs fixing? Renting is different from selling in that a buyer may be willing to take on certain problems in exchange for a lower price. A tenant isn’t going to fix anything. To the contrary, the tenant will not treat your property any better than you did - and probably worse.  A tenant will expect you to fix whatever is broken, even when the tenant has broken it.

If you are proud of the landscaping, consider keeping the gardener and paying for the water directly to ensure the grass, shrubs and trees will continue to look beautiful throughout the lease period. Include those costs in your rent calculations.

Finding a responsible tenant is key.  As a landlord, I likened tenant interviews to a blind date. Everyone is on their best behavior. No one admits to bad habits. You chat, hoping to get a glimpse of the reality behind the façade. You see if you have mutual acquaintances, inquire about their past relationships, get the names and contact information for the last landlord and the one before that. (Landlords anxious to get rid of the tenant won’t be entirely honest with a stranger who might take the problem off their hands!) You ask what they do for a living, and later on you do a background check.

And you search your soul: If the relationship sours, will you be able to separate your personal feelings from the business decisions you must make? Remember, once you sign the contract, your only recourse is through legal procedures. Your contract with the tenant spells out your expectations and the tenant’s, including who is responsible for what. You can enter the premises only with the tenant’s permission or, with 24-hours notice, to make repairs.

I don’t mean to scare, only to help you understand that being a landlord can be stressful and, if you self-manage, also hard work. If you are up to it, great! You don’t have to do it alone, and every service you hire is a tax deduction. Please consult your tax professional for details on how rental property affects your bottom line, tax-wise, and your attorney can answer any legal questions you may have.

Your Realtor can research local rental rates to help you determine how much rent you can expect, advertise for a tenant, review applications with you, obtain information on the applicant’s employment, credit, and any legal entanglements past and present that would be pertinent. Your Realtor also can provide a lease agreement that has been approved by the California Association of Realtors and guide you through the process. For this assistance, you pay a fee and the prospective tenant would pay for the credit/court reports.  A Realtor’s fees are always negotiable, but you’re probably looking at about 6 percent of the first year’s rent to be split between the listing agent and the agent who represents the tenant. This can save you time and headaches if you are going to manage the property yourself.

Property managers also can help you find a tenant. In addition, the property management company will collect the rent, inspect the property, deal with questions and complaints from the tenant, arrange for minor repairs, and, once a month, send you a check for what remains of the rent money after expenses are paid. In western San Bernardino and eastern Los Angeles County, you can find property managers who will charge a portion of the first-month’s rent to advertise and find a tenant and about 7-9 percent of the monthly rent to manage the property.

There are many property managers in the area, and you should interview several before making a selection. Read the contract with the property management company as closely as you read your contract with the tenant and consult your attorney if you have questions or concerns. Here are some questions to ask a property manager:

Start up: What do you charge to set up the account? Does this include inspecting the property, finding the tenant, background checks and  preparing the lease agreement? What else does it include? Do you recommend a yearly lease or month-to-month rental agreement and why?

Monthly cost: What is the monthly fee for maintaining the account? What does that cover? Is the monthly fee waived when the property is vacant? +How often will my property be inspected? What information can I expect to see in your monthly report?

Routine maintenance: Do you have an in-house maintenance staff or do you use a pool of maintenance vendors? What is the basic service charge? How will I pay for maintenance and repairs - through separate bills or money kept on deposit for such purposes?

The company: How many properties do you manage - and how many are single-family homes (or condominiums) like mine? How long have you been in business? 

And because you are hiring someone to act in your behalf, ask yourself: Is this someone I want to do business with? Are my questions answered promptly and to my satisfaction? Am I confident that my property will be in good hands?

‘Accidental’ or not, your experience as a landlord may turn out to be so rewarding, financially, that you will continue to build your real estate portfolio, investing in additional investment properties!

Ila Josephs is an experienced property manager and Realtor and can help you decide whether to lease your home or sell it. For more information, please call (909) 261-3541. Her service area includes the cities of Chino, Claremont, Fontana, La Verne, Montclair, Ontario, Pomona, Rancho Cucamonga, San Dimas, and Upland.