Are you relocating, and you’re unsure what to do with your current home? Or maybe you have a spare property that you don’t want to sell anytime soon. Properties are a great responsibility, and shaking them off your hands is not just something you can do overnight. Somehow, we get a sense of the “anarchy” in trying to choose the best option.
There are always benefits and risks in every decision. And regardless of whether you decide to keep or sell your home, there’s always going to be a need to prepare. So, following our sincere hope to help you make a more informed decision, here’s a run-through of the benefits and challenges if you want to keep your home. More specifically, if you want to keep your home and convert it into a rental.
Converting Home into Rental Property Pros and Cons
Investors say real estate is the greatest and most profitable investment one can ever make. That’s because land is a finite resource. Property values are generally going to increase over time because of the increasing demand for space. Basically, if a home doesn’t sell today, it will sell soon enough.
The question now for homeowners is, “Is now the best time to sell a home or rent out your home?”. Objectively speaking, you need to look at both your personal situation and what’s going on in the market. This is because sometimes, the demand for your location can be periodic, especially when you’re too far away from central business districts. In this case, you’ll need to decide whether your lease offer is going to be for short-term (i.e., AirBNB) or long-term.
Aside from the circumstances, here are the challenges and benefits that you need to consider before leasing out your home:
PRO#1: Tax Benefits
Rental income is not considered earned income which means that it isn’t subjected to a lot of tax regulations as other businesses are. You can even qualify for more tax benefits if you own and operate a rental. Here are five (5) tax advantages:
- You are exempted from paying FICA Tax
- You can deduct business-related expenses from your taxable income. These include travel, education, office utilities, gas, etc.
- You can deduct rental operating expenses from your taxable income. These include property management fees, repair & maintenance expenses, advertising costs, supplies, etc.
- You can be eligible for the depreciation deduction
- You can qualify for the pass-through deduction
PRO#2: Don’t Have to Go Through the Home Selling Process
Other people dread selling their homes because the process can be stressful, especially when you sell on the market. Plus, there’s really no guarantee when a deal will close because there are too many factors that influence a real estate transaction. So, for the reason of convenience, some homeowners would opt to convert their property into a rental instead and hire a property manager to handle everything.
PRO#3: Passive Income
Rental income is passive income that you have control over. When you invest in the stock market, for example, your gains depend on the market situation. However, with a rental property, you have more control over how much profit you’re going to have per month. All you need to do is set the right price, allow space for sudden expenses, find good tenants, be a good landlord, and that’s it.
PRO#4: Have Help Covering Your Mortgage
Many people hesitate to invest in real estate due to fear of not being able to pay the mortgage. Well, if you rent your property out, you may not have to think about this issue at all. If the property you want to convert still has a mortgage, you’ll have to factor this into your rental fee.
CON#1: Purchase Another Insurance
You might be wondering why your homeowner’s insurance isn’t enough. Well, the majority of homeowners insurance only applies to structural accidents. If you own a rental, there’s a risk of income loss when your tenants suddenly leave or cause harm to your property. The damages of such are not covered by homeowner’s insurance. Instead, landlord insurance will take care of these problems.
CON#2: Management Responsibilities
Setting up a rental property doesn’t just end when you’re ready to accept tenant applications. The responsibility continues because, in order to keep your tenants, you need to be a good landlord. And to be a good landlord means that you respond immediately to any concerns, ensure that the property is safe for your tenants, and, from time to time, reach out to your tenants for any concerns they may have. This is why some landlords hire a property manager instead.
CON#3: Prep the Home According to State Standards
Before you allow any tenant to occupy your home, it’s important to have your home inspected. Your property needs to be habitable and completely safe for your tenants. If anything happens due to a structural issue you failed to fix, you can be legally charged for that.
CON#4: You Need to Set Aside Emergency Funds
This is basically like taking care of your home, but with added pressure. If issues arise like in the plumbing, walls, electrical, etc., you have to act on them immediately or risk losing your tenants. Hence, you need to set aside a budget for emergency maintenance and repairs.
If Not a Rental, Then What?
People have different situations so it doesn’t always mean that what works for one will work for everybody. Operating a rental can be easy and difficult at the same time. So if you think converting your home into a rental is not the most suitable solution for you, you can also consider selling your home to us at Spire.
Let us help you take away your property problems by buying your home from you in cash. Whether it’s your own home or a property you inherited and don’t want anything to do with it, we are here for you. Spire Property Solutions buy homes in Georgia as is, and we can give you an offer as fast as 24 hours!
Call us now at (678) 318-1801.