Buying your first home is often a combination of hard work, financial fortitude, and a certain amount of necessity. You find a place you like within the limitations of what you can save up for and afford to pay for monthly. Buying your second home, on the other hand, is most often an act of financial freedom. Your career has moved forward, your savings deepened, and your ability to financial commit has grown considerably. You can now afford the house of your dreams or even build a new one if you wanted to. The only question is what you’ll do with your old house.
Selling May Not Be the Answer
The vast majority of people assume that they’ll have to sell their first home when buying a second and the idea of getting the lump sum after the sale is pretty exciting. What they’re not thinking of is the hassle of emptying, staging, finding buyers, and negotiating between them and actually seeing the money. Not to mention the legal rigamarole and the capital gains tax which will take a 15% bite out of any appreciated value since the home was purchased.
There is, however, another option that has the potential to completely cover the remaining mortgage, if any, and create a steady passive income for the rest of your life. Once you’ve moved into your new house, you have a rare and valuable opportunity to easily become an investment property owner and landlord.
Owning Investment Property
Investment property is any land or buildings you own that can be used to make a profit rather than serving as your primary residence. While these can be office buildings or even agricultural property, the most common form of investment property is homes. Most people start small, just like you, with an extra home they either inherited or recently grew out of. Rather than selling the home they didn’t plan on living in, the owners decide to rent it out to families who need rental housing.
The best thing about investment property is that it quickly becomes passive income that you don’t have to work for, especially if you factor in a property management service for maintenance, landscaping, and repairs. In most cases, a reasonable rent is enough to cover any remaining mortgage payment, a property manager, and still leave you with a bit of monthly profit that, over time, can really build up. People often use investment property as a retirement plan because once the mortgage is paid, that income will turn into hundreds of dollars in profits every month.
The Vacation Rental Option
Of course, normal housing rental isn’t your only option. In most neighborhoods, if you’re willing to put in a little more time and investment in furnishing and stocking a property with amenities, you can rent it for fantastically more per night and month as a vacation rental home. Platforms like Airbnb and VRBO allow investment property owners to book their furnished properties by the night as an alternative to crowded, impersonal hotels. Your guests get the benefit of a quiet residential neighborhood, privacy, and a full kitchen and you get $60 to $1000 per night depending on the size and luxury of your listing. Many property managers even offer a special service for vacation rental properties.
When buying a second home, selling the first is always an option but it may not be your best one. Keeping the home as a rental investment property saves you the hassle of the selling process, provides decades of passive income, creates a retirement plan, and builds your net worth. If you find you love being an investment property owner, you might even find yourself picking up more homes to rent or, if you don’t, the option to sell is always available. For more tips and tricks on managing your residential property, contact us today!