Often when you are going to move out of your house, you can considerkeepingthe home for a rental property.Maybe you are moving out of the area, maybe you are just moving intoanother house, but should you convert your primary residence into a rental property?And the answer is not an easy yes or no.
Here are six questions that you want to consider before you convert your primary residence into a rental property.
- Ask yourself, if I didn’t own this home today,would I buy it as a rental property?
Now, this is putting things just right on the table there.Would you buy this property if you had the moneyin your pocket?This particular property, your principal residence,is a rental property?And the answer, more often than not, is no.Maybe your principal residence does not make theideal rental property.Maybe the ideal rental property is smaller,different location, doesn’t have as many amenities,and maybe it has more amenities.But don’t justassume because you own yourprimary, principal residence, would necessarily be agood rental property.If the answer to this question is no, maybe you want tosell your property, and if you still want toowna rental,buy a separate rental property.
- How much will my net profit be per month?
This doesn’t mean gross profit; this means net profit, meaningafter expenses.So, you need to take your rental incomeand subtract things like:
- Mortgage payment,
- Property taxes.
- HOA dues.
You’re going to subtract all those expenses out to see what yournet proceeds per month. You also need to consider that you may have some vacancieson the property.You may also end up paying a property management companyto manage that home for you.So, make sure you’re subtracting those expenses outto figure out what your net profit is going to be.
- Can I emotionally detach from the home?
You need to emotionally detach from the propertyand if you can’t do that, then do not rent the property out.If you walk into that property, which used to be your home,and a tenant is now living in, and you see that theyremoved your blinds, or they didn’t cut your rose bushesthe way you used to cut them.If that bothers youon an emotional level, then you should not be a landlord.You need to detach emotionally because it’sno longer your house.It’s a rental investment property.
- What are your long-term plans?
If your long-term plans are to move back into the house,then this may be a great option for you.If your long-term plans are to move out of the stateand never come back again, maybe you don’t want to ownthis particular piece of real estate.
- How far away geographically will you be?
You need to consider, are you going to be across the street? Are you going to be across the town?Are you going to be across the U.S?This may help to determine whether or not you want to keep your houseas a rental property.
- What are the tax implications?
The government gives special tax breaks to homeownersthat don’t necessarily pass through to real estate investors.This means that you could potentially sell yourprincipal residence tax-free.If you convert it to a rental property, and you waittypically two years, those proceeds from the saleare no longer tax-free.You should get advice from a good CPA.
If you are thinking about converting your propertyto a rental property, call us up at Trustart Realty. We’d be happy to have that conversation with you,get you in touch with a good accountant,get you in touch with some tax advisors,and have that conversation to help you.