Converting Your Residence To Rental Property

If you are considering purchasing rental property and also thinking of moving, one possible option is to not sell your home when you move and instead rent it out. There are various pros and cons to doing this, and whether it’s the right option for you will depend on your situation.

The most obvious benefit is that there are fewer transactions involved. You don’t need to list your home for sale and you don’t need to find rental property to purchase, though you may still be purchasing a new residence if you don’t already have somewhere else to move. You may not even need to pay an agent at all — though an agent can still be useful in guiding you to the right choices for your situation. It could also be financially better for you to simply buy once rather than buy twice and sell once. This will depend greatly on several factors, including such things as the market conditions, neighborhood, property size and condition, budget, and mortgage balance. Even if you know you can afford to buy one property, you may not be able to afford to buy two properties and pay off your current mortgage, even with the income from selling.

However, converting a primary residence to a rental property is also a process, especially if you still have a mortgage. If you purchased the property as your primary residence, that was taken into account in your interest rate. The rate is probably lower than if you purchased it as rental property. Because mortgage companies don’t want you to lock in a lower rate then immediately decide you don’t want to actually live there, your mortgage contract may have a stipulation that you must have lived there for a certain length of time to convert it to rental property. Even if you don’t have a mortgage, property taxes are also lower for primary residences. There’s no time restriction on conversions for property taxes, but the rate will change.

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