Should you turn your home into a rental property?

Over the years, we’ve had homeowners tell us they wanted to turn their home into a rental property. Whenever we hear that, we always ask the same questions: “Have you ever thought about real estate investing?” and “How long do you plan on holding the property as a rental?”

We’ve found that rental properties work great if you’re holding them for the long haul—I would say 10 years or more. It really works great if you have a plan to invest in real estate and you want to acquire 10 properties or more. 

I have an example to help you understand. Let’s say that you own one rental property and it generates $300 per month cash flow. In other words, you make your mortgage payment, the tenant pays you more than that, and there’s $300 left over at the end of that month.

“We’ve found that rental properties work great if you’re holding them for the long haul.”

As the tenant is living there, the air conditioning goes out and it costs you $6,000 to fix. Even though before the AC went out you were making $300 a month, now it will take you 20 months of applying that $300 toward your AC bill just to break even—and that’s with the hope that nothing else breaks and that the tenant makes all the payments. You can see how that can quickly turn into a bad situation.

The other thing is that no matter how you screen your tenants, they’ll never care for the property the same way that the owner does. We’ve found that over the short term, a homeowner could lose 10% to 15% of the value of the property in just the first year.

In real estate, the power really comes over time. If you have a passion for investing or if you turn the first property into a rental with the intention of buying more over the next several years (during which time you’ll pay all of them off), I think it’s a great strategy.

However, if it’s a short-term strategy, we almost always advise against it because we don’t want to see you get into a bad situation.

I hope that answers the question for you. If you have any other questions about buying, selling, or investing in real estate, reach out to us. We’d be happy to help.