We all love our first home, however, as time goes on, you may find yourself ready to move on to bigger and better things. Whether you need more space, want to move to a new area, or are just looking to upgrade, it might be time to find a new home. But when you find a new place, what happens to your first home? Rather than selling, many homeowners are discovering the benefits of renting out their first home when they move on to the next.
Deciding whether or not to sell your first home can be a challenging decision. There are certainly pros and cons to renting, as well as selling. First and foremost, renting out your first home can be a great way to generate some additional income. The prospect of earning money off your first home is certainly a motivator for many people to consider renting. Buying a second home, while renting out your first, is a great way to begin a real estate portfolio.
Getting financing for an investment property is significantly more challenging than getting financed for an “owner-occupied” home. Renting out your first home will not affect your current mortgage, and you can still apply for “owner-occupied” financing for your second home (which requires a lower down payment and offers lower interest rates than that of an investment property) as you will be living in it, not a tenant.
Keep in mind that you will be applying for a second mortgage. You will need to prove to lenders that you are a safe bet. It often helps to have a tenant lined up for your first home, prior to applying for a loan for your second home. In some cases, lenders may consider that future rent as part of your income when approving your second mortgage. Be sure to speak with an accountant to determine the tax advantages (and possible challenges) that come with renting out your first home. Tax rules can be tricky so be sure you have a thorough understanding of how renting out your home will affect you tax-wise.
Renting out your first home will only benefit you if you can, in fact, find a tenant. Does your home have what renters are looking for? Be sure to research the rental market in your area and see how your home stacks up. Look for similar rental homes in the area to help assess how your home compares. It is important to set an appropriate rent that is competitive yet still allows you to make a profit. Make sure you take all factors into consideration: maintenance costs, property taxes and insurance. It always helps to speak with a professional for guidance
Renting out your first home and purchasing a second home can be a great way to earn additional income and help get yourself in the home of your dreams.
If you would like to discuss renting out your home, reach out to me at your convenience. I would be happy to help you take steps toward turning your home into an income property.