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Maximizing Opportunities: Keeping Your Existing Home as Rental and Acquiring a New Dream Home

Updated: Aug 16, 2023

Recently we addressed the challenges facing homeowners who are stuck in a home that isn’t a great fit due to the “golden handcuffs” of extremely low mortgage interest rates on the existing home. As the real estate market evolves and interest rates have risen well above their historic lows, homeowners can choose to make the best of where they live because they have a great rate on the mortgage, or explore creative ways to leverage their existing property (and keep that low interest rate!) while making room for a new dream home that better suits their family's needs.

One such option is to keep your current home as a rental property while purchasing a new one. In this blog post, we'll delve into the benefits and steps involved in achieving this financial feat, allowing you to optimize your investment potential and provide a better living situation for your loved ones.

Run the Numbers!

Before venturing into this dual-property journey, it's vital to assess the financial feasibility of owning two properties. Consider factors such as:

Equity and Mortgage Balance: Determine the equity in your existing home and the remaining mortgage balance. You'll need funds in the bank, or a sufficient equity position to access these funds from your existing home through a home equity line of credit or second mortgage, to meet down payment requirements on your new home.

Rental Market Analysis: Research the rental market in your area to understand potential rental income. This will help you gauge the viability of maintaining your current property as a rental.

Cash Flow and Reserve: Calculate the expected cash flow from the rental property after accounting for expenses like mortgage payments, property taxes, insurance, maintenance, and vacancy costs. Ensure you have an emergency reserve to cover unforeseen expenses.

Get Pre-Approved for a New Mortgage

Speak to your preferred Greenlight Mortgage Group lender to get pre-approved for a new mortgage on your desired property. Keep in mind that in most cases, the projected rental income on the home you are renting out can be added to your existing income once a lease is signed, meaning that this can help you to qualify for the existing mortgage payment plus the new mortgage payment. Having a pre-approval will give you a clear picture of your budget, ensuring you can comfortably afford both mortgages.

Explore the Taxes

Renting out your existing home means you'll become a landlord, which has certain tax implications. Consult with a tax professional to understand the tax benefits and obligations associated with rental properties, such as deductible expenses and depreciation.

Decide How to Manage the Property

Determine whether you'll manage the rental property yourself or hire a property management company. Self-management may save costs, but it requires time, effort, and dealing with tenants directly. Property management companies can handle day-to-day operations, but their fees will affect your cash flow.

Secure a Good Tenant

Selecting a reliable and responsible tenant is crucial to ensuring a smooth rental experience. Conduct thorough background and credit checks to minimize potential risks and ensure timely rent payments.

Optimize Your Existing Property

To attract quality tenants and maximize rental income, consider making necessary improvements and cosmetic updates to your existing property. This can increase its market appeal and potentially command higher rental rates.

Plan for the Unexpected

While the idea of maintaining two properties may seem exciting, it's essential to have contingency plans for unforeseen circumstances. Ensure you have sufficient reserves to cover vacancies, major repairs, or prolonged economic downturns.

Time Management

Owning and managing two properties require effective time management. Be prepared to allocate time for property maintenance, tenant communication, and handling any unforeseen issues.

The Wrap

Today’s market can be a golden opportunity for homeowners to keep their existing property as a rental while purchasing a new home that better accommodates their family's needs. By carefully assessing the financial aspects, understanding tax implications, and having a solid plan in place, you can create a win-win situation where your investment thrives, and your family thrives in their new dream home.

DISCLAIMER: This informational is educational in nature only. Loan product availability and qualification requirements are constantly changing. If you'd like to learn more about a product, please contact one our our highly qualified loan officers.

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