There are few investments as lucrative as real estate. If you already own your own home, then you are one step closer to building wealth. So how does that translate if you are considering moving from one home to the next? If you’re curious about buying a second home and renting the first, then look no further. Let’s explore the renting vs. selling pros and cons to help you make the best decision for you and your family.
WHAT KIND OF HOME RENTS THE BEST?
When you consider what kind of homes are great for rentals, consider who may be renting your home. There are always exceptions to the norm, but by and large, most rental homes are occupied by two types of renters. The first is a small and/or young family, sometimes a set of DINKS (“double income, no kids”). The other type is college students or young adults in shared living arrangements.
Consider if your home would be an ideal living situation for either. Is your home smaller? Would it easily accommodate 2-3 people? Do you live in a college town or a metroplex where there is an influx of young families or students? If so, you shouldn’t have a problem finding good renters. And having great rentals always starts with finding great renters.
WHAT KIND OF RETURN SHOULD I EXPECT?
The return on your investment in your rental home is dependent on the home’s size and location. Typically a 3 bedroom/2 bathroom home ranging in size from 1,200 to 1,800 square feet is in higher demand because it can easily accommodate the types of groups previously mentioned. Smaller homes in good markets result in higher demand and may equal a higher return on investment.
A rule for good cash-flowing properties is 1% of the purchase price of the home. Meaning a home that cost you $250,000 to purchase typically rents for 1% of that, so $2,500/month. Of course, your actual return depends on your cash-to-debt ratio on the home. If you can get more in rental fees than you owe on a mortgage, taxes, and insurance, you will be in the positive. If you cannot, then it might not be worth your time to rent. If your home is paid in full, renting can be a great way to have good cash flow on a recurring monthly basis.
HOW MUCH DISTANCE FROM YOUR RENTAL?
Distance from a rental can be a factor when considering buying a second home and renting the first. If moving from Los Angeles to Austin, then you will have a different set of considerations in renting your home than if you move across town.
Can you find a good property manager, or are you wanting to manage it yourself? It’s practically impossible to manage yourself if you live across the country, but there are some great management companies that can help manage your property from a distance. Most rental property management companies charge between 5-12% of your monthly rental value. Depending on what you can charge in rental fees, paying a property manager may be worth it to you.
On the other hand, if you are moving within a 30-minute drive from your current home, renting your home and managing it yourself will be much easier and more practical. You will be close enough to be on call should your renters or rental need you.
How to Buy a Second Home and Rent the First?
When contemplating the prospect of buying a second home and deciding whether to rent or sell your current house, it’s vital to prepare your home for rent by addressing any repairs and determining a competitive rental price. Market your property effectively, considering online platforms and real estate agents, and thoroughly screen potential tenants to ensure reliability. Stay well-informed about local landlord-tenant laws to navigate potential legal issues smoothly. By following these steps, you can make an informed decision about whether to rent or sell your house, paving the way for property investment and multiple homeownership.
LIVE AT LAKESIDE AT TESSERA
Whether you decide to rent or sell, living in Lakeside at Tessera in Lago Vista, is the perfect place to make your new home. Only a short distance from Lake Travis and the best Austin has to offer, Lakeside at Tessera gives you the opportunity to build your dream home in our luxurious community.