Email question: Should we buy another house and rent-out our current one?

Pete

My husband and I paid off of our mortgage last year and are currently completely debt free.  We are considering moving into a larger home and renting out our current home.  What are the advantages/disadvantages to this?
Kim
Zionsville, IN

I did this, kinda. I didn’t pay off my first home prior to renting it out, but we rented-out our home in order to move to a different house. So far it has worked out, but I’ve learned quite a bit about being a landlord and real estate. So below, in no particular order, you will find the pros and cons of doing this.

Pros:

  • You get to move.
  • You can create some serious additional cash flow.
  • You can use your increased cash flow to increase the value of the rental, even more, by staying on top of upkeep.
  • If the housing market continues to rise, then you will make more on the eventual sale.

Cons:

  • You will be solely responsible for the taxes and insurance, if the property goes vacant.
  • If the housing market falls, you would have been better-off to sell it now.
  • Take the time to understand the tax implications of being a landlord. It’s not all pie and ice cream.
  • Be prepared for other people to make their financial problems, your problem.
  • Be prepared to fix stuff that you never thought needed fixed.
  • If your home isn’t the sort of home that rises in value (an inexpensive production home), then this plan would be a terrible idea.

All in all, it makes sense, but there are risks. If you aren’t a landlord type of person, consider hiring a management company, for about 10% of rent.

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