Getting ready to move? For many, this means putting your current home on the market so you buy your next one. But have you ever thought about keeping your current home as an investment property?
Here are a few factors to consider when making your decision:
Your Own Housing Plans
Your reason for moving can play a part in deciding whether to sell or turn your home into a rental property. If your move is based on the desire for a newer or larger home, for example, then it might make sense to keep your current home as an income property. This, of course, is dependent on your financial situation, which we will discuss momentarily.
Another reason to keep your home as a rental might be if you are moving away temporarily for a job. In this case, it may be cheaper to rent your house out and move back when you return. You won’t be paying for sales commissions, and you won’t have the need to buy a new house when you get back.
Keeping with the temporary move scenario, it is important to understand the tax implications involved. Depending on how long you plan to be gone, you can rent your home out for up to three years without risking capital gains taxes should you decide to sell it.
Renting out your home can also provide tax deductions. You can depreciate the value of your house for tax purposes. Typically, to determine your annual depreciation, you can divide the amount you paid for the house, plus the cost of significant improvements (less the value of the land) by 27.5 (the number of years that tax law says a house must be depreciated).
If you absolutely must sell your home to pay for your next one, then turning it into a rental may not make sense. However, if there is a way to swing it, there are definite advantages to hanging onto your property. The added income, of course, is the obvious benefit. If you can rent your home for enough to pay for mortgage and expenses, and have a little extra, you’re already in the money. As well, with each monthly rent check, it is likely you won’t have to pay tax on that income if you have enough expenses, such as mortgage interest and repair costs, to offset it.
Rising Home Prices
With a steady investment home income, you can sock money away for your retirement. This can be particularly attractive if home values continue to rise in your area. When you’ve paid off your mortgage or if you retire, you could easily sell your home for a profit or continue to rent it out to maintain a steady income.
While there are certainly other things to think about when considering turning your home into an investment property, one of the biggest questions would be to determine how comfortable you are serving in a landlord role. As you are probably imagining, renting out a home takes a little bit of work. There are leases to draft, maintenance issues, and tenants to deal with. If this part of rental property ownership does not sound appealing, you do have options.
At Shield Property Management, we are a full-service real estate firm that understands the ins and outs of investment property. Our property managers can take care of every last detail to make sure that your rental home has reliable tenants and is well maintained. You just need to sit back and deposit your monthly rent check!
If you would like to learn more about how Shield Property Management can help you, contact us here.Contact us