Should I Sell My Home or Convert it to a Rental Property?
Selling a home and moving into another is something that you may be considering. This may because your job is taking you to a new location or you have simply outgrown your existing home. There are times, however, when putting your home up for sale might not always be your best option. Turning your existing home into a rental property might just be the better way to go under certain circumstances. Here are some very good reasons why you as a homeowner should consider turning a home into a rental property as opposed to selling it.
The Housing Market in the Area is in a Downward Trend
There are times in the real estate market that no matter how good your home looks you cannot sell it for what it’s worth at the current time. Real estate historical trends in most areas show that down housing markets do usually pick up over time. It would be silly to lose some potential good future income by selling your home during a depressed housing market. Renting your home can be used as a low-cost option to bridge the gap until the housing market in your home’s area picks back up again.
The Payments on the Mortgage Are Low Enough Where It Could Generate Rental Income
Have you been paying down your mortgage on your existing home for a while? If you have, then there is a good chance your mortgage payments are low enough that you can generate some good extra income by turning your existing home into a rental property. If you want the extra rental income but don’t want the hassle of being a landlord, there are plenty of property management companies around that will manage the property for you for an 8-12% fee.
Are You in a Financial Position Where You Can Take On a Second Mortgage?
You’ll need to have enough money for the down payment of your next home though, without counting on proceeds from the sale. Ask your bank for low down payment options. You’ll also want to be sure you have the ability to make repairs as needed, and that if the property were to be vacant for 2 months, that you can still make the mortgage payment. If you have enough money in savings and enough discretionary income coming in to justify taking on a second mortgage, then you should definitely consider the option of turning your home into a rental property.
Use the Existing Home as an Investment Property
This could be a perfect time to try your hand at investing in real estate. By turning your home into a rental property your tenants will be paying your mortgage until it’s time to sell your home and then cash in on your investment. This home when paid off could help with your retirement. If your mortgage is low enough you may even generate a little extra cash off the rental income too. Even if the property is at a break-even stage right now, over time rents will rise while your mortgage stays the same, and you will eventually have a passive income.
Rental Homes in the Area are in Demand
Let’s face it; the biggest profits made on items in the world today come when there is a high demand for an item and only a limited supply. This can be true for rental homes too. If you live in an area where there is a big demand for rental properties but few exist, then this is something you can really cash in on. You are now in a situation where you can get top dollar for making your home available to rent. This situation also pretty much guarantees that your home will also be continuously rented out too.
You May Want to Use the House in the Future
More and more people are choosing to rent their homes as vacation properties or on a short term rental basis. This is ideal for people that want to move to another location, yet still spend some time back where they are currently living. You can sign up with a company such as Airbnb and Vrbo. Companies like these specialize in matching people looking for a vacation home or short term rental in a particular area with the rental homes that are available in that area. You can also find a reputable property manager to look after your home for you while you are away from it. This can be a real win-win situation. You get to stay in your old home when you are in the area, yet it generates income while you are not using it. Or if you think you may want a home to fall back on, to move back into at some point in the future, holding on to it now guarantees you a very inexpensive living opportunity in the future.
Rental Properties Often Come With Tax Breaks
You may not realize how favorable tax breaks are for those that have a rental property in your area. This fact alone can make it well worth to rent your home as opposed to selling it. Those who have property rentals are often allowed to claim such tax deductions as depreciation expense and property upkeep costs. You can also claim expenses for the time you spend managing the property and even some insurance premiums you pay on the rental property may be tax-deductible. Start by asking your accountant what tax breaks you are eligible for if you turn your home into a rental property.
It’s definitely worth spending a little time evaluating your current situation, and these factors, before you sell your home.
Author Bio: Peter Evering is the Business Development Manager of Utopia Management. Since 1994, Utopia has provided quality property management services for investors in San Diego and all of the US West coast.