I get asked all the time about buying a new primary residence and turning an existing primary residence into a rental, so I thought I'd put out some tips on how to accomplish this.
Here are the 5 main things to consider:
- Is the new home you're buying more expensive than the value of your existing home? If not, you'll need a good explanation why you're moving 'down' in home quality instead of moving 'up.'
- Can you qualify for a new 2nd mortgage with your existing reportable income? If so, no problem at all... Proceed ahead and skip #3!
- If you need the additional income from the proposed new rental, then you'll need at least 30% equity in that home and an executed lease on the home. Definitely doable, but requires a little more work.
- AFTER the down payment on your new home, do you have the required cash reserves for the new rental property? You'll need to document at least 6 months of PITI payments set aside.
- Are you truly ready to become a landlord, with all the accompanying headaches? Make sure you have a plan for how to find good tenants AND a list of good handymen and contractors to help with repairs.
There you go! You're on your way to getting your first rental property.
As always, if you have any questions at all please don't hesitate to contact me.
Kevin
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