Considerations to Make Before Converting Your Current Home Into a Rental Property

A home is being rented during tough economic times.

Outgrowing your home is something that happens often with many families. Whether you have decided to have more children, you have a hobby or business that requires more space to be used in your home, or you just feel like its too small, it requires some serious decision making as to whether you sell or rent your current home before moving. For many home buyers, particularly those with a great deal of equity in the current home, it presents the question: “Do I have to sell in order to buy?” Since real estate is meant to be a long term investment it is actually a good idea to keep your current home while purchasing another if you can do so. If this is the route you are looking to take there are a few steps you will need to take. First determine if it is financially feasible for you to own two homes.

Determine your purchasing power

If you were to sell your home and take out the equity, how much could you afford to spend on a purchase and what type of home would that get you? If  you choose to keep the old home as a rental property, you may not want to use all of the equity from your old home. You have to decide if this is a route you want to take. Keep in mind that renting out your current home can be very lucrative, especially since apartment renting is in high demand.

Understand monthly income and expenses

Next step is to run the numbers and get an understanding on your new financial reality. First you want to research the rental market and see what similar homes are renting for in your area. You’ll want to know how much rent you can ask for with your current home. Second you will want to make sure that the rent will cover the mortgage. If not, it could be a loss to have the rental property. Sometimes an investor will take a small loss in the beginning to build equity in the long term so you have to determine if that is an option for you. As you run the numbers you want to make sure you account for 10% off for issues like repairs and improvements.

Trust your decision and move forward with it 

Just like buying a new home while trying to sell a home can be stressful so can renting while buying. You want to keep in mind that it could be stressful, especially in the beginning. Unlike buyers- who shop within months before knowing they can move in- renters usually shop for a new place to live within weeks of a desired move-in date. Once your new home is in contract and any contingencies are removed, its time to get the rental property on the market. This is the time to start showing the home, especially while it still has furniture in it. It is always better to show a home with furniture so future renters can envision the space of the home.

Screen potential renters and choose wisely

Becoming a landlord means you are now owning a business and your tenant will become your customer. Its better to have a good customer than a bad one. Make sure that they tenant  you choose has plans to stay for a longer time. This means less turnover in the rental property and less wear and tear. Also do background checks, and employment checks to ensure that you are getting a tenant with a good payment history and solid work experience.

Reach out for help

If you plan to move out of town or even out of state you should consider hiring a rental manager to handle your new rental property. They are the ones that would be there to deal with repairs or complaints from the tenant. They will also collect the rent and enforce the terms of the lease, if necessary. Property managers usually have a team of repair specialists and contractors who can fix any problem that may arise.

The last thing to consider is that owning a rental property will also come with new tax considerations and requirements so make sure to talk to your tax professional before you sign on the dotted line. If you have crunched the numbers and found that renting your current home is the option that is best for you then we want to wish you the best of luck on your new ventures. Being a business owner is exciting and rewarding! If you have any questions on obtain a mortgage for a new home we would love to hear from you. Please contact us here for more information.