By Michael D’Elena, realtor at HomeSmart – Elite Group
So, you have made the decision to move out of your home, buy something new to live in, and rent out the home you are moving from.
Have you made the right decision?
In today’s real-estate market, this is becoming the reality for more and more homeowners. After all, home prices are down as much as 50 percent in some parts of the Valley. The thought of trying to sell in such a market can make even the most weathered homeowner’s stomach clench.
Regardless of the reason, there are numerous factors that homeowners, and subsequent investors, should be aware of before making the switch.
Consider the upgrades and repairs
Just like when you go to sell your home, doing repairs and making upgrades to the property increases rental value as well. It makes it more appealing to a potential renter and is willing to pay a higher price for a nicer looking home. The more people interested in the property will result in a better tenant because you can be more selective.
Consider the financial incentives
As with any investment property, the owner is entitled to certain tax deductions. But, the amount of the financial incentive you are able to receive will be dependent on the amount paid off your owner occupied property mortgage and the equity you have raised to help purchase your new home.
Considering your loan options
Along with any tax deductions, it is important to consider your current loan structure. When you first bought your owner occupied property, your home loan was structured to cater to your current needs. If you are considering turning your home into an investment property, you will also want to consider the structure of your current loan and the possibility of converting it.
Considering the end results
You’ve considered the tax incentives and reconfigured your loan, now what? Before renting out your property it is important to consider how the investment property will work. Are you going to manage the property yourself or hire a property management firm to do the work for you? It’s a big decision. While a property management firm may seem like the easy way out, it’s important to consider the additional cost with this. Property management firms often charge 10 percent of the monthly rent for their services, but they handle everything from finding tenants to collecting rent to managing repairs.
Regardless of your current situation, turning your owner occupied property into an investment property is difficult and requires a lot of consideration. There’s no doubt that renting out your home can be a smart move, especially in the current market. But if you do decide to go this route, make sure you do your research. In addition, it may be beneficial to contact an attorney, accountant, or any other professional that can help with the transition from homeowner to landlord.