The current housing market is definitely picking up in most areas around the country, but it still has one fundamental problem: low supply. Many buyers are choosing to keep their old home when they purchase a new home, meaning there are fewer homes are on the market, driving up demand.
Becoming a landlord
Buyers that do not need the equity in their current property to purchase the new home they are moving into are choosing to become landlords instead.
The financial crisis and ensuing recovery have boosted the need for rental housing. In fact, the series of buyers not selling their current house before buying a new home reduces the supply for homes to buy. This raises the prices, and it prices entry-level buyers out of the market. Unable to purchase the home they can afford, they then choose to rent a home that is more suitable their needs instead, resulting in rental price increases.
For those able to become landlords, it is somewhat of a perfect storm. The ability to demand higher rent increases the income from your rental property, increasing your equity.
Advantages for landlords
Don’t forget the other benefits of being a landlord. Since your former home is now a business for tax purposes, repairs, maintenance, utilities, taxes, insurance, some fees, and other costs may be tax deductible. Be sure to consult a qualified tax accountant to find out what your tax liabilities or deductions may be when making your former home a rental. Remember too that collected rents count as business income, so be sure to establish proper accounting records for your property.
Advantages for underwater homeowners
The option of turning a home that currently is worth less than then its mortgage into a rental property offers a way to build equity into the home and shift the balance back toward the break-even point, while potentially making a little income in addition. So, rather than chuck more money into the current home, making it into a rental solves the upside-down mortgage issue while freeing up cash for the down-payment and mortgage on a new home.
The emotional costs of being a landlord
Some property owners, especially if they lived in the property, find it difficult to make the shift from homeowner to landlord. They mourn painting over their faux finishes with generic rental neutrals, and seeing a nursery turned into an office. They worry about potential damage to their property, and the associated costly repairs, and they fret about the possibility of months without a renter and having to pay on two mortgages at once.
The best solution toward making this shift is to hire a professional property manager. A professional helps you establish the appropriate rental amounts to cover both the initial mortgage and other costs and repairs that may become necessary.
In addition, they offer a buffer between the owner and the renter that keeps the relationship entirely professional. Having a property management service handle your rental and renters can give you peace of mind while ensuring that your former home is in good hands.
Discovery Coast Real Estate does not do property management, however, we can connect you with a property management professional, so let us know what your plans are so we can help.
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