Underwater but want to move up to a better place?

Underwater but want to move up to a better place?

There is a half generation of homeowners who want to move up to a place that fits their current situation better.  Many couples who bought two bedroom town house and condos in the mid 2000's are now growing families of four or five.  They are not deadbeats, and they can afford their monthly payments, even more.  They just can't sell their homes and buy another because of declined values to their current home.  Many of them are considering alternatives to their current living arrangements.

Some folks have decided to just remain in their overcrowded and not family friendly homes.  Some have decided to just walk away and give up completely on home ownership.  Some have decided to become renters while also becoming landlords.  They'll rent their home out while renting something more suitable for their needs.

There are considerations that need to be addressed before finalizing a decision to become a renter-landlord.  Affordability is the first thing people often consider.  Will the rental income cover all or most of the expense of continuing to own the home?  But, there are other things that come into play also. 

If your home is transformed to income property, there may be some tax considerations, some good and some not so good.  While most people consider that tax benefits of owning income property are attractive, there may be some tax hazards.  What if the rental turns into a failed business venture, and you need a short sale or lose the property through foreclosure?  Do the same rules about debt forgiveness and their tax consequences apply to investment property as homestead property?  Are there differences in the way deficiency judgments are made and/or collected?

I don't know the answers to these questions, and I don't even know all the questions.  Before becoming a renter-landlord, do yourself and your family a huge favor.  Consult a real estate attorney and a qualified tax consultant.  They will charge you what may seem a lot, but it will be well spent.