Have You Considered Renting Your Home?

As the real estate market slowly rights itself we are finding that many homeowners are left underwater when it comes to equity within their home.  We are seeing some improvement with continuously low rates and lower inventories on the market, but it will be along time before the value on homes purchased in the heart of the uptick in the mid- 2000’s is fully recovered.  Though not all is lost, sometimes we have other options than going bankrupt if we can’t meet our mortgage payments, or selling our homes if we want to buy a new one.

My wife and I have been considering our options for our own home as we have a strong desire to move to a lakefront property.  Waterfront homes are usually in high demand and short supply, so they can be quite costly.  That beind said, we can’t afford to take a negative hit on our current home, so we have naturally considered renting out our home instead.  There are many benefits to this; no closing or brokerage fees, rental income, asset diversification, retirement savings.  Right now we have a 20 year mortgage on this property, so if we kept this home and rented it out, we can essentially be mortgage free on the home by the time I am 50 years old. To me this is an ideal investment for retirement.

Now as we discuss all the benefits of owning a rental property, we have to be careful to consider all the potential negative consequences involved as well.  There are certain tax benefits involved with a mortgage on your first home, however, those same benefits don’t often apply to a second home.  Next, you have to be prepared for all natural and routine maintenance expenses that will arive over those years.  A roof will eventually need to be replaced, a hot water heater will break, the furnace could go out, and as a landlord you have to take responsibility for replacing these items.  Quite honestly, landlords insurance is becoming more common these days as landlords  focus on protecting these income generating assets.  In this instance, not only is the value of your home protected against inclement events, but the income you generate is protected as well.

Regardless of your decision to rent or sell your home, make sure it is an educated one.  With the fluctuating tax laws, interest rates, market climate, what works right now may not work next year.  I’ll try and pop back in next year and let you know what I decided to do.

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