Myth: It doesn’t make sense to buy if I don’t plan to live in a property long term.
Truth: A home you live in for a few years can become a valuable investment property.
The Benefits of an Investment Property
If you’re serious about homeownership, today’s challenges aren’t roadblocks, they’re just stepping stones.
This week we explore why making your planning to make first home an investment property could be a smart move, depending on the home, its location, and your financial goals.
If you love a Pacific NW neighborhood, but know you will want to move in a few years, consider holding onto your home as a rental. It gives you the best of both worlds, living in a place you enjoy while building equity and income when you move on.
How to See if It Makes Financial Sense
I can run a comparative market analysis to help you understand rental demand in your proposed neighborhood. We will look at data on rent rates, occupancy trends, and resale values to make an informed decision.
You’ll need to tally projected income against expenses. Tabulate costs for your mortgage, taxes, insurance, HOA fees, and possible property management costs. Don’t forget a reserve fund for repairs and cover gaps between tenants. Compare the costs to your expected rent to see if it makes financial sense. There are non-cash tax deductions that can make a property that doesn’t cash-flow still be a good investment.
Long Term Considerations
Ask yourself:
- Can you afford two homes with the expected rental income?
- Do you expect major expenses soon, like college or medical bills?
- Will rent cover your mortgage and expenses over time?
- Is your home currently underwater (mortgage owed exceeds possible sale price)? Renting while waiting for appreciation could be smart.
Check with your tax or financial advisor about how turning a primary home into a rental might impact your taxes, especially regarding capital gains exclusion rules.
What to Consider Before You Commit
Will you need proceeds from your first home to buy the next? If selling is necessary to fund your next purchase, it may be best to sell instead of renting. Or you can look into a Home Equity Loan or Line of Credit to get the equity out of your first home.
Are you equipped to be a landlord? If you plan to rent long-term, you’ll need to handle tenant screening, maintenance issues, and legal requirements, or hire someone who can. Think about distance, time commitment, and your comfort level with the responsibilities involved.
Turning your first home into a rental can give you both the joy of homeownership and a smart financial investment. You get to live where you love today, earn income tomorrow, and keep the door open for your next chapter.
Next week we’ll dive deeper into investment home strategies and why your first home can pay dividends long after you move. Let me know if you’d like to explore turning your home into an investment property or just want to understand how it all works; I’m ready when you are! Grab a time on my calendar!
If you missed the previous issues or want to see the next in our Mythbusters series, be sure to check out
Sell
Buy
