Keep the Old House and the New?

That starter house is too small and it’s time to move up to something that better fits your growing needs. The original plan—sell the current house and buy a new one—might not be the only option. What if you could keep both?

In many areas, housing is in lower supply. Some buyers are choosing to keep their original home, making it a rental, while buying a new one to live in. Is this a good plan for you? Here are some reasons why it might be (and some why it might not):

You don’t need the equity

Your current home has equity—the increase in value, plus the amount you’ve paid down on the existing mortgage—that you will receive if you sell it.The typical plan is to use that equity to make the down payment on the new home.If you don’t need that equity for your down payment, however, you could keep this home and rent it.

You don’t have equity

If you purchased your home during the last housing boom, or you got a second mortgage or refinanced and took cash out, your home may not have much equity. The cost to sell your home (real estate agent commissions, closing costs, etc.) might just eat up the equity you do have. In this case, keeping the home and renting it out might work out better for you than selling it.

You want to become a landlord

Turning a home into a rental is a business decision. Because it has its own costs, the decision to become a landlord should not be a casual decision. But, if part of your long-term plan includes real estate investment, start with the house you already own. The uptick in the economy and resultant business expansion in many areas means rental housing is at a premium, making this a prime time to own a rental.

The downside of being a landlord

Because it is a business decision, becoming a landlord is not for everyone.This is especially true if your family lived in the home and you have emotional attachments and memories built around it. The possibility of one or more months of no rental income must be factored as well, with a cushion to handle that contingency so that your mortgage is paid and the home you’re living in isn’t jeopardized. Additionally, setting aside funds for repairs from potential renter damage and general maintenance gives peace of mind to a new landlord.

If it makes business sense, but the idea of dealing directly with renters seems daunting or you don’t have the necessary emotional detachment,consider hiring a professional property manager. These real estate professionals know how to set appropriate rental amounts, execute lease agreements, handle repair and other costs, and screen potential renters.

Let a real estate professional know your plans. They can connect you with a property management professional to make becoming a landlord a smooth transition.