Many people that are moving on from their first home or their primary residence will consider:
Should we rent this home when we move out, or should we sell it?
As many taxpayers try to create passive income as they get older and get into the wealth-building stages of their lives, the thought of owning rental real estate becomes extremely attractive.
When thinking about whether or not you should convert your primary residence to a rental property, here are the primary things you should consider.
Would I be buying an investment property if I had cash?
"If I gave you cash, instead of owning the home you already own, would you still be buying an investment property?"
A mental exercise that brings out more "no" responses then "yes" responses in my experience, and it's the first question you should ask yourself in this situation. Because we already own the property, we're often emotionally invested in the property, which is why we have to take a step-back and look at it from a different perspective.
Is this the best investment property?
"If I gave you cash, instead of owning the home you already own, would this property be the one you'd be buying?"
Same idea, slightly different question. Perhaps the answer to question 1 is "yes", I'd still be buying an investment property. The next question identifies if this is the best property for you.
Some factors to consider - What does cash flow look like as a percentage of my investment? How is the property expected to increase in value in comparison to other properties? What kind of reserves would I need to maintain this property? Do I plan on moving out of this state, and how would that impact my tax situation?
Real estate can be an extremely attractive investment for many reasons as people look to create passive income, or take advantage of the many loopholes and deductions available to real estate investors.
If you're looking to sell your home and you're considering renting it, or you want to learn more about the tax benefits of real estate, book a time with me for a complimentary consultation: https://calendly.com/curatedaccounting