Assuming you’re current on your mortgage and have the credit scores to buy another home, now may be the time to turn your present home into a rental. If rent will cover your mortgage costs, you’re off to a good start.
To see if you can afford to carry a rental plus another home mortgage, your lender must see a signed rental contract, but counts only 80% of the rental income. Why? Many homes don’t rent as soonas they hit the market. You have to show enough resources to pay both mortgages, just in case.
There are other expenses to consider. Your home is no longer a homestead, but is now an income-producing asset which will change the tax rates on your home and on your income. You should consider contacting your income tax professional to learn how renting your home will impact your income taxes and deductions, so you can budget and escrow the appropriate estimated amount you’ll need at tax time.
The advantages are that someone else is building equity for you. The longer you own your rental, the more amortization rates work in your favor. You can deduct maintenance and improvement expenses and “depreciation” from your income taxes, benefits that are not available to homesteaders.
Your Berkshire Hathaway Home Services network professional can provide you with market comparables and advice about the pros and cons of becoming a landlord. He or she will be able to share real-life property management situations and costs that may help you to decide.