Now that’s a tough question. And I cannot answer it for you, but maybe I can give you some input so that you can make your own decision.
Most people faced with that decision will be purchasing a new home. If, without selling your existing home, you have enough for the closing costs and the down payment to purchase a new home, let’s continue. Your next step is to speak with a mortgage professional. The income from the rental property will add to your income used to calculate your debt to income ratio. Your credit score will also be involved. If the mortgage professional gives you the green light to proceed, this may work well for you.
Next, with the help of your Realtor, calculate what the property would rent for. If your carrying costs are at the break even point or better, you’re in good shape. You see, the rent should cover your mortgage, taxes and insurance. Anything else is gravy. You will build equity in the property as the mortgage gets paid down. And the tenant will be paying your mortgage. Depreciation will help you on your tax returns. And at least for the next few years, home values should continue to rise. Tenants are not difficult to find, as there is a dearth of rental properties available nationwide.
Now let’s examine some negatives. Most towns will require you to register as a landlord. You will need to get a new Certificate of Occupancy for each tenant. Many towns will require that the unit gets painted between each tenant. If the hot water heater fails in Friday night, expect a late night phone call. And sometimes tenants don’t take care of the property as you would, and this may require some investment to return to the original condition. When a tenant vacates the property, you may not have any rental income for 1, 2 or more months. And if you hire a Realtor to rent the property, their commission is quite often the first month rent.
Finally, speak with your financial advisor or accountant. Using their input, along with what else I have suggested, and make your decision as to whether or not you want to become a landlord.
If you wish to discuss this with us, Call Bunny and Art Reiman, 732-598-7700 or go to our web sites, www.BunnyandArt.com , www.55PlusInOcean.com or www.55PlusinMonmouth.com