In the last couple of years, about a quarter of all the inquiries to our office have been from move up buyers. A move up buyer is a person who is buying a bigger home or a nicer home, or a home that’s better located. They are trying to decide if they should keep their property as a rental property. We tell them that residential real estate is a fantastic way to build long term wealth. But, before you decide to become a landlord, you need to ask yourself four important questions.
Can You Afford to Buy a Second Home if You Don’t Sell Your Current Home?
Think about whether you need the equity in your current home to be a down payment for your next property. If you’ve got a mortgage on your current property, can you get a second mortgage if you don’t sell your current home?
Do You Have the Necessary Financial Resources?
You’ll need to be in a financial place where you can afford two properties. This is particularly important because you’ll have two mortgages; one on the old home and one on the new property. Even if the rent is enough to cover your mortgage payment, you’ll still need to spend some out of pocket money on that old property. For example, if there are vacancies or routine repairs that are needed, you’ll need to pay for those. There might be major repairs like a new air conditioning system or new interior carpet. You’ll need the financial resources to cover both properties.
Are you Prepared to Be a Landlord?
Even if you hire a good property manager to handle your property and take those 2:00 am maintenance calls, there’s still a lot involved in owning rental property. What if a renter complains and wants things changed in your property that you were more than willing to tolerate when you lived there? Perhaps there’s a shower that has low water pressure or the back door needs to lift slightly to lock. If that type of stuff drives you crazy, don’t be a landlord.
What is Your Timeframe?
Residential real estate is good over the long term to build wealth. It doesn’t work so well for the short term. The very first property I owned and lived in was 32 years ago. When I moved, I kept it as a rental. Over the last 32 years, the price has increased and my renters paid off the mortgage. I have great equity. But, if your timeframe is shorter, like one to three years, it won’t work as well.
These are the four important questions to ask yourself if you’re a move up buyer considering keeping your property as a rental. If you have any questions about this, please contact us at Hoffman Realty.