Buying your first home is often a combination of hard work, financial fortitude, and a certain amount of necessity. You find a place you like within the limitations of what you can save up for and afford to pay for monthly. Buying your second home, on the other hand, is most often an act of financial freedom. Your career has moved forward, your savings deepened, and your ability to financial commit has grown considerably. You can now afford the house of your dreams or even build a new one if you wanted to. The only question is what you’ll do with your old house.
Selling May Not Be the Answer
The vast majority of people assume that they’ll have to sell their first home when buying a second and the idea of getting the lump sum after the sale is pretty exciting. What they’re not thinking of is the hassle of emptying, staging, finding buyers, and negotiating between them and actually seeing the money. Not to mention the legal rigamarole and the capital gains tax which will take a 15% bite out of any appreciated value since the home was purchased.
There is, however, another option that has the potential to completely cover the remaining mortgage, if any, and create a steady passive income for the rest of your life. Once you’ve moved into your new house, you have a rare and valuable opportunity to easily become an investment property owner and landlord.
Owning Investment Property
Investment property is any land or buildings you own that can be used to make a profit rather than serving as your primary residence. While these can be office buildings or even agricultural property, the most common form of investment property is homes. Most people start small, just like you, with an extra home they either inherited or recently grew out of. Rather than selling the home they didn’t plan on living in, the owners decide to rent it out to families who need rental housing.
The best thing about investment property is that it quickly becomes passive income that you don’t have to work for, especially if you factor in a property management service for maintenance, landscaping, and repairs. In most cases, a reasonable rent is enough to cover any remaining mortgage payment, a property manager, and still leave you with a bit of monthly profit that, over time, can really build up. People often use investment property as a retirement plan because once the mortgage is paid, that income will turn into hundreds of dollars in profits every month.
The Vacation Rental Option
Of course, normal housing rental isn’t your only option. In most neighborhoods, if you’re willing to put in a little more time and investment in furnishing and stocking a property with amenities, you can rent it for fantastically more per night and month as a vacation rental home. Platforms like Airbnb and VRBO allow investment property owners to book their furnished properties by the night as an alternative to crowded, impersonal hotels. Your guests get the benefit of a quiet residential neighborhood, privacy, and a full kitchen and you get $60 to $1000 per night depending on the size and luxury of your listing. Many property managers even offer a special service for vacation rental properties.
When buying a second home, selling the first is always an option but it may not be your best one. Keeping the home as a rental investment property saves you the hassle of the selling process, provides decades of passive income, creates a retirement plan, and builds your net worth. If you find you love being an investment property owner, you might even find yourself picking up more homes to rent or, if you don’t, the option to sell is always available. For more tips and tricks on managing your residential property, contact us today!
Managing a rental property is a complex task requiring a number of considerations every year to keep the house in top quality without spending too much or intruding on the tenants more than necessary. Even if you regularly check in with the tenants to confirm that everything is working well for them, without actual preventative maintenance steps, disaster can strike that your tenants simply didn’t see coming. To avoid these problems and the costs that all too often come along with them, we have put together three helpful tips on saving money through preventative rental property maintenance.
1) Check for Early Signs of Water Damage
First and foremost, water damage is your biggest enemy. It’s silent, sneaky, and does a lot more than get things soggy. Anything allowed to remain moist too long can begin to grow dangerous mold, soften, rot, and then attract insects who like living in rotting houses. Leaks can happen in your attic, basement, bathrooms, kitchen, and even from the pipes in the walls so it’s important to occasionally inspect the house for early signs of water damage. Your primary checks should be under sinks and around water fixtures but don’t forget to look for pooling water in the ceiling, damp spots on the walls or floor, and signs that the roof might be leaking into the attic. Any signs of leaks should be hunted down and fixed immediately.
While we’re on water damage, also make a careful inspection of the grout and calking in the bathrooms and kitchen. Water splashes around a lot on these rooms and the sealant between the walls and tiles is important to keep the rest of the house safe. If there are any chips or gaps, repair them promptly.
2) Change the Filters Regularly
Anything in your house that runs on filters, from the water heater to the furnace, should have its filters changed regularly based on the advised maintenance schedule. When appliances try to run with a dirty filter, not only is this unsanitary for the tenants, it also forces the machine to work harder for the same results because the clogged filter slows down the flow of air or water. This makes them more likely to break, and new filters are much cheaper than repairs or replacements. Filters usually have their lifespans printed right on the package so it should be easy to determine how frequently you need to change them.
3) Prevent Pests with Biannual Extermination
The final nemesis of any homeowner or property manager is pests. Primarily insects, but sometimes also including birds and rodents, pests invade your home and can cause serious damage to the structure in their effort to dig in and build their own habitat. Bugs birds and mice are all perfectly fine- outside and you can keep them there by spraying long-lasting poison about twice a year. This will keep the termites, wood and, roaches, and mice out of your walls and away from your tenants.
Simply give your tenants plenty of forward warning about your intent to poison, then create a solid exterior perimeter. Spray the entire base of the house along with any doorway thresholds and windowsills to ensure there is no way for bugs to get in. If there is an unfinished basement, you may want to spray this as well.
Maintaining a rental home is a big responsibility but it doesn’t have to be a big expense as well. With the right preventative maintenance steps, you should be able to keep the property in top condition and pleasing to your paying tenants for many years to come. For more ways to save money on your rental property, contact us today.