Trying to decide if you should turn your home into a rental?
I recently had a great conversation with a family member discussing the notion of turning their property into a rental. They were curious about how to go about doing it and what the requirements to qualify would be. The main reason they were inquiring is that they had recently received their assessed value in their home. After just 3 years they continue to see their home value increasing. The current real estate market has created some great opportunities for many of us to become real estate investors. Now there are always many angles to look at this ever-growing value in our homes.
Again, in just 3 years since their purchase, the value of their property has increased 37%, that is just over 10 percent a year. Learning this caused the wheels to start turning and they began brainstorming the possibilities. Can they keep their current home and turn it into a rental? Is it possible to cash out and use the equity to put down for another purchase? What are their options?
These are very valid questions to be asking. Many will say that real estate is one of the best investments you can embark on for your family’s financial future. It can be an added asset to your retirement plan. With the current rate of increase in our real estate market over these past few years, this would hold true. The only thing is it’s more than just “tapping” into your equity. There is more to investing in properties than just acquiring properties.
Becoming a landlord and setting yourself up to be an investor takes some serious thought and strategic planning. Just like with any business opportunity you don’t walk in saying “I’m going to make money starting day one”! Of course, the objective is to earn money and create wealth. However, “investing” in properties you have to go in expecting you will not see your returns overnight.
Remember the game of monopoly? Remember when you drew the Chance card that you need to make general repairs on all your properties, pay $25 for each house and $100 for each hotel? Or Community Chest card asking for $40 per house and $115 per hotel for street repairs? When you start the game these cards are meaningless BUT if you end up acquiring properties and building, these cards suddenly have real-life consequences. Such as added expenses you may not be able to afford.
This is exactly why you need to prepare. Having built equity in your home is fantastic. There is no reason not to inquire and look at the possibilities of building wealth. Prepare yourself and discuss with a qualified lender, C.P.A and possibly a financial advisor. Ask yourself these questions:
- Do you have enough funds in the bank to make repairs/replacements when needed?
- Would you have the time to make any needed repairs and upkeep for the property?
- Could you cover the mortgage payment should your renter not make their payment?
Being a handyman and having the capabilities to take care of minor repairs is great but you also have to consider what do you do if you are not a handyman. As well as needing to consider the time it takes to make the needed repairs.
Becoming a landlord can be challenging and also rewarding. It’s just being able to go in with your eyes wide open and to be prepared for the unexpected, that is important. Again, talk with a qualified lender, discuss your goals, your vision and go over the requirements in purchasing an investment property. In case you missed it check out How To Get Into Real Estate Investing as well as Want To Be A Landlord, to help you on your journey in deciding to turn your home into a rental.
If you have any questions and/or would like to discuss, give us a call!