How to Buy a Second Home and Rent the First

Are you wondering how to buy a second home and rent out the first? You might not be ready to give up your first home and could be thinking that renting it out is a great solution, a way to make some extra money and a great way to build your property portfolio. Becoming a landlord can be tricky but with the right realtor to advise you things should be ok. First you need to consider a few things about your current home….

Is your current home a viable rental option? Consider what might be easier to rent, is your home suitable for a family, does it have plenty of space inside and out, is it close to schools, amenities, conveniences. Many people want to be located close to conveniences; these things make it more desirable to a wider range of people.

Another big thing to consider is how much you can realistically charge for rent. If you are still carrying a mortgage on the first property and intend to take out another for the second, then you need to plan your finances carefully. Consider the option that you may not find tenants straight away, can you realistically carry two mortgages? Research other rental properties and find out what the going rate is for a similar property, is this rate enough to cover the mortgage outstanding on the property and to pay any unexpected expenses. Remember you will be responsible for maintenance on the first property as well as the second! So, if a boiler suddenly breaks down have you got the extra cash to repair it? And nobody likes to think about the negatives but also consider if you have tenants that don’t pay on time, can you afford to make the payments on two properties while you chase your rental income?

Think about how you plan to manage the rental property, will you be managing it and arranging repairs yourself? If you live nearby then this is a possibility but if you decide to move across state then you will need a management company, another extra expense you should consider.

If you are still sure on your decision you will need to check the details of your current mortgage loan. Many loans on your primary residence will stipulate whether you can rent out your home. Most say you must have lived in the home for 12 months before you can, read the fine print and make sure this is a possibility.

Now is the time to sort out your finances, find a lender and discuss the details of purchasing a second home. You will also need to speak to a tax attorney, owning a rental home will change how you file your taxes. A tax attorney will walk you through everything from taxes you have to pay to what can be deducted, as well as realtor costs, eviction costs, and depreciation costs.

When you finally have all the information and are ready to purchase your second home be sure to get the first in order. Look at the home with a fresh pair of eyes and see all the little things that need attention. We are not talking renovations here but minor repairs you may have been putting off. Maybe a lick of paint to spruce things up and make it fresh for new people.

Now it’s time to find your second home, the home that will become your primary residence.