When you’re moving to another house, you may be thinking of turning your previous house into a rental property. However, converting your home involves more than just placing a “For Rent” sign in your yard, as there are several things to consider when undergoing such a task.
Let’s go over the pros and cons to see both sides of the story.
Income from renters
The biggest and most obvious benefit you can get from renting your old property is you’ll have a direct income stream from renters. Those monthly rent payments go directly into your account, ideally more than offsetting any repair expenses for the month. If you choose to rent out your house for $2,000 per month, it could yield $24,000 per year, barring any mortgages.
You should note, however, that those kinds of numbers are optimistic, and you shouldn’t expect to get those results every year. Still, even if you can get the house rented for just 75 percent of the year, you can get $18,000 a year in income, which is not bad.
Better interest rates
When you turn your primary residence into an income property, you could benefit from lower interest rates, which could mean more money in your bank. Likewise, there are some tax deductions that you can maximize to help offset the taxable income you receive from your rental property.
Easier to prepare
If you’ve lived in the property for a while, you’re more likely to be familiar with the condition of the home and prepare for upcoming maintenance, thereby eliminating possible surprise costs down the road. While you’re still living there, you can start tackling those issues. You can easily call your local contractor or go-to electrician to remedy any issue before the home is rented.
Being a landlord
If rental properties are such a great way to build wealth, then why aren’t all investors investing in them? Being a landlord takes energy and time. If you don’t want to deal with bad tenants and emergency repair calls, you can hire a property manager to do these jobs for you. But hiring one will also cost you money.
Harder to get a mortgage
Unless your income is high and there’s consistent cash flow from your rental property, it could be more challenging to obtain a mortgage for a new home while carrying a mortgage for the old home. In some banks, if you can’t present a proven rental income, they might not consider giving you another mortgage.
Tenants are never a guarantee to pay their rent. Even in the best of times, a good revenue stream is far from guaranteed. Sure, most of the time, you’ll get a great tenant that will pay their rent on time for years and years. However, there are still others that won’t pay regularly, or worse, won’t pay at all.
There’s also the risk of not having a tenant at all, which means there could be periods when the house generates zero income at all.
Transitioning from being a homeowner to a landlord is one that can be advantageous but, at the same time, stressful. While having another source of income is always good, juggling all the responsibilities of being a landlord can be very difficult.