Saving for a Season hatched out of an idea that we save best when we have a purpose.
The following does not constitute financial advice. Always seek help from tax and real estate professionals prior to important real estate decisions.
Have you moved from your home and now must rent it out?
Are you regretting your decision not to sell?
I am here to tell you how in fact, it could be you chose the right path.
MAKE “ACCIDENTAL” TOTALLY ON PURPOSE
You thought you’d make some money selling your last home to put money toward your next home, but that didn’t happen. You’ve decided to rent it out so you’ve either hired a property management team or you’ve decided to manage it yourself. You have renters. You’re an “accidental” landlord.
Don’t ask, “How did I get into this position?” or, “How do I get out of this?” or even, “How annoying could the renters get?” I instead offer another angle for you to consider (though you should always analyze your individual situation carefully).
Ask these questions:
– How can I have someone else deposit $300-$500 in my account every month?
– How can I earn an hourly wage of $30-$50, while working out of my house or on the road?
– How can I do that while spending 10-15 hours a month on something for which I am the subject matter
– How can I do this while getting a guaranteed salary promotion?
FROM A NIGHTMARE TO A DREAM COME TRUE
The answers usually point to sales; however, in this case, the answer could be your home. You are the subject matter expert because you lived there. Someone else is paying most of your mortgage (if not all) while they rent out your home, depositing money for you.
That is income. While money in a home is not easily retrievable, it is accumulating for you at an almost gift of a rate. In a typical mortgage, the rate of accumulation increases as well: each year, the bank’s interest decreases, and your mortgage payment is made up of more principal. So in a typical mortgage’s first year, it may accumulate only $3000 in equity. The next year, it could be $4000*. Each year, equity accumulation increases!
Your property is basically promoting you every year.
So it’s true: you have a part-time job that some only dream about.
FIND A BUSINESS SUIT
Want to make it a career? Follow sites like this one, and research numbers. Use mortgage calculators and amortization tables to set up the case for why buying and holding a property could benefit you.
After crunching all these numbers, you may decide you want to make your part-time job a career. Consider each move a career builder, as you have another opportunity to purchase a home, also known as a future rental. Consider your business plan, and why you’re in the business. Consider the following each time you purchase another home:
– What home is adequate for me and a good fit for most others?
– In the future, how can this home provide living space for others not in a position to buy?
– How can I be the best business owner possible?
And, probably most importantly, consider what you’ve learned. Your first home may have made you an “accidental” landlord, but the next one doesn’t have to surprise you. Because of your lessons learned, you can now crunch numbers to come out on top. Ask these questions:
– How can I work this next mortgage to provide 10% profit on my investment?
Have I considered property taxes, repairs, insurance, HOA, and management fees?
Have I considered its rentability: school district, number of bedrooms and bath, and yard?
Have I researched the area’s rental market now, and considered its future?
– How much money do I put down to achieve this goal? Aim to make 8-10% on your initial investment. So,
if you put $10,000 down, you want to be able to make at least $100 over and above your monthly
And yes, in case you were wondering, the answers to these questions might result in the purchase of a smaller home.
There is a great deal of pressure right now to be debt-free. I talk heavily about this in my upcoming book because I feel that perhaps, for some without consumer debt, paying down house debt may not be good stewardship. Good stewardship is responsibly using time and money to grow more. As I’ve pointed out, renting out a home – not paying it off – has the potential to grow far more than would burying your own money in something that may or may not sell.
You have a gift with your rental home. It enriches your life, and it has the potential to enrich the lives of many future tenants. Treat it well – and choose better next time.
*Check your amortization table for specifics
**Always check your appetite for risk and never over-leverage your income.