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?
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.
- 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.
- 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.
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.