7 Advantages of Turning Your Primary Home into a Rental Property

A great way to get into owning rentals is to turn your current home into a rental when it’s time to move. The first step, of course, is to run the numbers and see if your current home will cash flow as a rental. If that is the case, there are 7 advantages that I see. It’s often the easiest and fastest way to get into the rental income game if you are planning on moving anyways.

How to turn your current primary home into a rental property

 

1. Better interest rates

 

If you finance a rental property, you will mostly likely have to pay a higher interest rate for the mortgage. (Technically the rates are the same but the fees built into the mortgage are higher and result in a higher rate, blah blah blah.) All things considered you might end up paying .25-1% more.

 

But when you have financed your primary home at a basic interest rate, and have lived there at least 12 months, you can move and convert into a rental. You get to keep your old mortgage, while taking out a new primary mortgage (though not the case for every loan, like if you exceed your VA loan benefit).

 

I always recommend interviewing a few mortgage brokers (I am not one) and finding a knowledgeable and helpful person. But most of the time, this is the easiest way to finance 2 properties.

 

2. Fewer transaction costs

 

You have already paid to finance your current home, if you sell it and buy two more properties (rental plus primary home) you will have 2 more finance expenses. Plus the cost of selling your current home verses renting it out.

 

3. Fewer surprises

 

You already know your home, and it’s issues. The biggest fears with buying rentals is all the unknowns. If you have lived in your home a few years, you have had the chance to figure out and maybe fix those issues. You know if the basement leaks when it rains. Or how your slightly old shingles will handle a strong storm.

 

4. Prep the home while living there

 

It takes time to get a home ready to be a rental. New paint. Small repairs. If you plan to convert it into a rental in a year, you can slowly start tackling some of those issues while you are living there. It will be a lot less stressful to handle slowly, instead of rushing to prep a new rental to be market ready when every day represents lost income. (Although I recommend postponing more expensive repairs until it becomes a rental or between tenants for tax write off purposes.)

You have to prepare a home to sell it anyways. Why prep one to sell only to buy another home which needs more work to get ready for renters?

 

5. You can still change your mind and sell without a tax hit

 

As the tax law stands you can sell a home that was your primary residence without incurring an extra tax bite from the profit up to $250k/$500k if you lived in it 2 out of the last 5 years. That doesn’t have to be the 2 years before it was sold. Just any 2 years.

 

So if you lived there 2 years, rented it for 2 years, then changed your mind about the whole rental game you can still sell it with out paying taxes on the profit. This would NOT be the case if you went out and bought a new rental then sold it 2 years later.

 

6. Knowledge of the market/area

 

Having lived in that home, you know the area better than any other place you might purchase a rental. How is the crime? What is the neighborhood like? Is it a more transient or stable neighborhood? What is the going rent price? How are the schools? You know all this about your street/neighborhood. And some of those things are tough to figure out when buying rental properties. Having the inside scoop is a huge advantage. Plus, if you made friends with your neighbors, they might give you a heads up if things get crazy with your renters.

 

7. Knowledge of potential renters

 

Remember who you were when you decided to move onto this street, in this part of town, near these schools, in this kind of home, with this number of bedrooms? That is also your ideal renter. You understand them. You know them. You probably have a fair amount in common with them.

 

When you are just getting started as a landlord, this is a huge advantage and will make managing those relationships easier. As will advertising and marketing your home. Plus you can speak to all those things when you talk to renters. If they have questions about noise, schools or the general community vibe, you have got that covered.

 

As long as you bought a home that will cash flow as a rental, converting it to a rental might be the easiest way to become a landlord when you go to move. If you ever need help navigating these kind of options, that’s what my money consultations are perfect for! I currently have 2 spots open for April. 

For Conversation

Have you ever turned your home into a rental or are thinking about it?

Do you think that would be easier for you or better to just buy a new rental?

Do you know if your current home could cash flow as a rental?

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34 thoughts on “7 Advantages of Turning Your Primary Home into a Rental Property

  1. We’ve done this twice, though at this point both have been rentals for more than 5 years. The only issue is when you have renters that trash a place you’ve lived, it’s a little emotionally tougher than when you have to repair the damage in a place you haven’t. And, at least one of the houses doesn’t have as good a cost to rental income ratio as we would have looked for if we’d bought it as a rental.

    • The emotional investment can be a huge drawback! At some point we might turn our current home into a rental. That part will be tough because it was our very first home and we have gutted and redone every surface. I imagine I will be VERY picky about who we rent it to!! If I could offer random advice to first time home buyers it would be seriously consider if it’s worth buying a home that wouldn’t cash flow as a rental. There are a few good reasons to do it, but they better be really good reasons. =) But if you can start with a home that would be a profitable rental, that is a great way to set yourself up for the future!

  2. The houses near me are pretty awful as investment properties, unless you’re banking on high appreciation, which is of course risky. Haha, we even built a web app / calculator tool to help us do the math!

    Rental properties are great in certain areas to get cash flow and diversify investments, and renting out a house you used to live in does seem like a great way to get started, depending on the market. ?

    • There are some areas where it will almost always be cheaper to rent than buy. It’s a big consideration when people go to buy: How much more are we willing to pay a month to own? I have a friend who lives in the Northern Virginia/DC market, and am helping her run the numbers on what might make sense. It gets tricky especially when you want to live in those upside down markets for 20+ years and maybe have a family or stay in the same neighborhood.

  3. Yes, we turned our old home into a rental. It was how we started with rental property. I think this is a great way for someone to try being a landlord. If you don’t like it, then sell the home in 2 years and you won’t lose anything.
    You also usually have to put more down on a rental. It’s also tougher to get a mortgage for a rental. Getting a primary residence mortgage the easiest way to do it.

    • It is a great way to start. =) And your right, getting a new primary mortgage is much easier and less hassle. I agree, it’s a great way to test the landlord life. And easy to get out of if it’s not a great fit. =)

  4. We are literally just in the process of doing this. We’re in a hot market, so not sure how to arrange the financing so we can get into a place then prep for rental. Gonna talk to a mortgage broker about that this week.

    • There are some amazing mortgage brokers out there! As long as you plan to live there for 12 months, generally you just fiance it as a primary home, then when you move, finance the new home also as a primary home. As long as both properties fall within your personal loan amount, it’s really simple. Thinking about it ahead of time and creating a plan is a super smart way to go! Good luck!!!

    • It’s an easy way to test the rental water and see be able to change your mind. =) I’m glad that is had positive cash flow! I almost never recommend holding onto property that is costing you money every month. People just end up hating those rentals! Sounds like a good thing that you heard them out. =) Glad to hear it’s worked well for you guys.

  5. This was my original plan with our current residence five or seven years down the road! Since we arrived at the intersection much earlier than we had planned, we’re going to have to give up the rental notion, which is a darn shame, because we have an amazing interest rate on this mortgage.

    Alas, I’m not willing to endanger our financial foundation by holding onto so much debt with the expectation that the income will follow. We’re not in the position to cash flow expenses for both residences right now, but I know we could rent for quite a high number if we were.

    • The first step is absolutely to make sure the rental can pay for itself and provide income. If not, honestly I think it’s just too stressful and not for newbie landlords. It takes a rather advanced aka “sometimes stupid” approach to pull that off. Hopefully, you were at least in a good spot to sell it. =) Maybe next time. =)

  6. We have been doing the rentals since last summer. We bought a new house less than 10 miles away from hubby’s house in an association on the lake. He had planned to sell it but the market is soft and the real estate agent who sold us the new home recommended we look into vacation rentals. We had several weekend rentals between the end of summer and the leaf season in the fall. Then another half dozen during the ski season and we are getting people asking about weeks during the summer. At $225 a night, weekend rate and $200 midweek, the rental income has paid our taxes, association dues, insurance and utilities for the last 6 months. Prime season is Memorial Day through Labor Day in our area, so we anticipate the rentals will pay all of the expenses on the property as well as the mortgage on our new residence. There is work of mowing, snow removal and cleaning as well as other repairs, but we plan to keep it as another income stream. Fortunately we are in a great tourist area in the mountains and the lake is a huge draw in the summer, so there are plenty of people interested in renting weeks.

    • That is great! We have looked at the possibility of owning a vacation rental in a few years. We are in a really hot tourist area with great downhill skiing in the winter and Glacier National Park plus Flathead Lake in the summer. I think it’s a market that will only grow even more in the next 10-20 years because the internet has made it such an easy option verses hotels. 20 years ago, the market was so different. But now there are amazing platforms to rent out vacation homes or even rooms out on. =)

  7. Great advice here, Ms. M! We plan to convert our current home to a rental at some point, it would make an ideal rental property in our area, but we’re finding that it’s still doing a great job as our primary residence : ). For us, both sides of the equation need to make sense before we make the move.

  8. I thought about it a while back but the wife wasn’t on board at all. Although the stock market isn’t as linear as rental properties, the returns are high and the effort (at least in a total stock market index fund) is near zero.

    In my opinion, the ideal situation is to live in the same home forever, like Warren Buffett does.

    • One house would be a sweet deal for sure. The trick for us would be finding one home that meets our needs for decades without being too much or too little. If we build a home in the future, it will be a flexible living space to help accommodate life’s transitions.

  9. I’m thinking of doing this when we end up buying a new home. I think the biggest advantage is knowledge of the local real estate market. I can’t imagine investing in a rental in a location that I wasn’t overly familiar with.

    Question for you. Do you use a property manager or do you manage your rental on your own? This has been one of the biggest things holding me back from investing in rental properties. The added stress that comes with being a landlord turns me off a bit.

    • We never have used a property manager. Maybe I will write a pros and cons about that one day. We live in a very competitive rental market and we do a few things that have meant we have never experienced turnover. With everything else, we either fix it ourselves or know who to call. The advantage of the property manager is that they will make the calls to the repair people for you. You end up paying either way. I just prefer to save the 10% rent cost and google repair people and call myself.

  10. This is likely the plan we’ll follow as well if/when we buy a new house one day. The good thing is, we know exactly the type of renters we’re going to get since we’ve lived here for so long now.

  11. Although having rentals (again) is not on our agenda, I think the plan you discuss is a great way of getting into the market. I especially like #5 as it would only take a few months to determine if you made the right decision, and being able to sell without a tax ramification is a huge plus.

    • Being able to sell within 3 years if someone changes their mind without the tax bite is a huge plus. Plus they won’t have the extra cost of financing the mortgage which can run a few thousand. I don’t think rentals are for everyone or for every season of life, but this is an easy way to test it out. =)

  12. Hello Ms Montana,

    Yes, that was a great idea. In this scenario, you can know what the rentals expect to stay there as you experienced staying there. And you could provide the better facilities than any other who didn’t lived there.

  13. Not a fan of the idea of renting my home (or a room on Airbnb). Some people say that it’s a nice experience, but I’m a pretty private person. I like to be alone, and don’t want random tourists/tenants coming in at random times of the day. In addition, security is a big issue. You need to keep all your valuables secure.
    The main purpose of a home is to feel comfortable in it, and I wouldn’t be comfortable sharing it with strangers!

      • I have some friends who tried Airbnb, and the consensus was that it wasn’t worth the money. It actually takes quite a bit of time to clean up (unless you hire a cleaner), and then sometimes stuff gets damaged.

        • This post was actually about turning your primary home into a rental home vs buying a rental house. Like renting the whole house (unfurnished) for years at a time. It’s much easier to covert your primary home vs buying a rental. Renting out rooms or subletting your house is a whole different ball of wax. And I agree, much trickier!

  14. We are using our first home as a rental property right now. It still needs repairs/renovations performed, so our friend is living there with a discounted rate.

    Good point about the interest rates on the mortgage. We’re actually running into a few issues right now with that because we want to refinance. Our credit and interest rates are much better now than they were in 2004 . . . but, we can’t go with the standard mortgage lenders for this because it’s investment property.

    • Yeah those investment rates are tricky. It might still be worth it, but not as awesome as the current primary mortgage rates being offered. Finding an awesome mortgage broker is totally worth it. =) They are one of the few people who work off commission, and have something to do with money that I actually like. =)

  15. Hi, Ms. Montana! Love the article! I just found you through a mention on another website. How I wish I would have found you sooner. We have been on our journey towards financial freedom for over 7 years now, and due to starting my own blog now I think I’m finally finding all these people that would have been such an amazing support during all these years! As for this article, this is what we have been doing for the 7 years. Buying a duplex, living in half, fixing it up, renting it out, moving on to the next project, we have done that now three times, which can be challenging with the kiddos as I’m sure you know! Using the low down-payment options of living there really helped catapult where we needed to go with rental properties. Looking forward to reading more of your articles and likely bingeing your old ones!

    • Glad you found your way here too! Finding like minded community and friends is one of the very best parts of blogging. Congrats on your progress on your rentals! That is super impressive.