Money Girl answers 3 FAQs about real estate to help you succeed whether you're a buyer, seller, or investor—or even if you just plan to become one someday.
Here are three major advantages to keeping your home and turning it into an investment instead of financing the purchase of a different rental property:
Advantage #1: Keeping an owner-occupied mortgage
When you finance a rental property, the interest rate will be relatively high because it’s for a non-owner occupied property. Keeping your current loan in place could help you have good cash flow.
Advantage #2: Familiarity with the property
Since you live in the home you know its good and bad points and the neighborhood like the back of your hand. Buying a property always comes with uncertainty about its history or some hidden damage that an inspector could miss and you or a tenant discovers later on.
See also: Should You Pay Down Debt or Invest?
Advantage #3: Convenience
It’s just plain easy to stick a “For Rent” sign in the yard and run ads to see if you can charge a rent that makes it profitable to turn your home into a rental.
If you can make the property cash flow and move into a rental that cuts your expenses, you’ll be saving money and earning extra income at the same time. This arrangement could be the ticket for saving or building investments in a brokerage account that you could use to buy more real estate down the road.
However, before you move a tenant into your home, just be sure that your mortgage lender won’t penalize you for turning your residence into an investment property. Some mortgages may charge you a penalty or require you to refinance into a more expensive, non-owner occupied loan. Or they may require a one- or two-year waiting period before you can rent out the property.
Once you switch your insurance from a homeowner’s policy to a less expensive landlord policy, the lender will definitely know that you’re not living there anymore. So read your mortgage or call the lender to make sure that you understand what’s allowed.
As always, it’s a smart idea to consult a tax or financial advisor when making important decisions such as selling your home.
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