The Pros and Cons of Renting Out Your Home

Is it better to sell your primary residence or turn it into a rental property?

A lot of my clients are wondering whether they should sell their home or keep it and convert their property into a rental. It does make sense to think about converting your home into a rental to earn passive income. But, is it really a good idea to do so? 

There are two main ways for homeowners to get value out of their current properties. First, you can sell the home and get your equity out of it. However, a less conventional strategy is becoming more popular in our area: converting your primary residence into a rental. Here’s how you can do that.

1. Speak with your lender if you haven’t paid off your mortgage. You typically can’t use a primary residence loan for investment purposes, so you may have to change the terms of your mortgage or wait until it is paid in full. 

2. You must have lived in your home for at least 12 months before converting it into a rental. 

3. Check local laws and HOA regulations to make sure it’s legal for you to make this switch.

Before taking action, you should also know about the pros and cons of converting your primary residence into a rental.

"You need to move fast in our competitive spring housing market."

Before taking action, you should also know about the pros and cons of converting your primary residence into a rental.

Pros:

Steady stream of passive income you can use to invest in other areas. Rents have been rising all over the country, so you might be able to make more money from your rental than you think. 

Tax benefits. Unlike primary residences, there are a lot of deductions that rentals may qualify for, including advertising, repairs, cleaning, and maintenance. However, the most important tax benefit is the depreciation expense. This is an exemption for general wear and tear, and it could make all of your rental income tax-free. 

Cons:

Maintaining a rental can be a full-time job unless you pay a property management company to do it for you. 

Forfeiture of getting capital gain taxes exemptions when you eventually sell. You can get around this using a 1031 exchange, but you’d have to use the funds to purchase another investment property, so your options are limited. 

The truth is that whether or not it makes sense to convert your primary residence into a rental depends on your situation. If you’d like to discuss the topic further, don’t hesitate to call or email me. I’d love to talk things over with you.