Want To Rent Out Your Starter Home And Purchase Another?

Do you want to retire someday but are afraid you won’t be able to afford to quit your job? Find out how a financial advisor can help.

Want To Rent Out Your Starter Home And Purchase Another?

4 October 2017
 Categories: Finance & Money, Blog

If your family has long outgrown your "starter home," you may be wondering whether keeping your current home (and mortgage) and renting it out to another family is a better alternative than trying to juggle a sale and purchase all at once. In many parts of the country still recovering from last decade's housing crisis, rental prices have far outpaced real estate prices, and turning the home you already own into a rental can be a great way to expand your real estate portfolio without taking on much extra risk. Read on for some of the factors you'll want to consider when deciding whether to rent out your current home and purchase another. 

Can You Carry Two Mortgages?

Although you may assume that your rental revenue will be more than enough to cover your existing mortgage, making a new mortgage essentially a "wash," most lenders will refuse to consider the rental value of your home as a "real" value unless you have at least a couple of years of solid rental history.

This means you'll usually need to be able to demonstrate that you can afford both your mortgage payments without this extra rental income. For households with modest incomes or an already-high mortgage payment, this may make the conversion of your current home into a rental a non-starter; but if you're determined to keep your current home while purchasing a new one, you may want to shop around among mortgage lenders to see whether smaller or local banks may be more likely to extend you this additional credit.

What Kind of Financial Cushion Do You Have?

In addition to having the financial reserves to continue making mortgage payments even if your renters fall behind on their own payments, you'll want to ensure you have sufficient financial reserves to tackle any unexpected expenses that may come your way. 

Tenants can often be tough on your home's fixtures and appliances, and you may find yourself answering midnight phone calls requesting help with a broken furnace or a leaking refrigerator coil. Without some extra money in the bank to defray these unexpected costs, you could find your finances stretched far too thin as a landlord.

Is Your Next Home Your Forever One?

Whether you're expecting a job change or an out-of-state move over the next decade or two, anchoring yourself to more than one piece of property in your current location is something to consider when deciding your future housing goals. In some cases, it can make more sense to sell your starter home and turn your next home into a rental when you relocate, rather than trying to sell two homes (or rent both out) at once. 

By keeping these factors in mind, you'll be well-equipped to make the best possible decision when it comes to keeping, renting, or selling your starter home. 

About Me
An Enjoyable Retirement

Several years ago, my dear dad decided he needed to start saving money for retirement. After speaking with an experienced financial advisor, my parent started a Roth IRA. Over the years, my dad’s retirement account has accumulated a substantial sum of money. He recently told me he plans to retire after working for two more years. Do you want to retire someday but are afraid you won’t be able to afford to quit your job? Consider scheduling an appointment with a reputable financial advisor in your area. This professional can talk with you and help you develop a personalized savings plan. On this blog, I hope you will discover the most common methods people utilize to save money for retirement.