Whether they are underwater in their first mortgages, or just want to make extra cash from renting, more homeowners are choosing to become landlords instead of selling their homes.
Many who have done this have found that the rent on their first home more than pays for their mortgage, while they enjoy living in a new space—creating a new breed of accidental landlords in the real estate investor pool.
This could be part of the reason that the number of homes for sale is dwindling. In fact, the trend of homeowners renting instead of selling contributes to the overall stall in housing recovery.
As owners keep and rent instead of sell their previous homes, the number of houses available for sale can’t meet demand. Meanwhile, rents continue to rise, up by 20 percent nationwide since 2006, and home prices remain about 20 percent below what they were eight years ago.
If you’re considering moving out of your house and renting, there are a few things to watch out for that differ from buying an investment property straight out.
Mortgage: Some mortgages have stipulations on changing from an owner-occupier to investor, including waiting periods, penalties or refinancing to a more expensive loan.
Insurance: Evaluate the costs of changing your homeowner’s policy from an owner-occupier to investor, and like other costs, add that in while calculating rent values.
Taxes: Since you can’t take the homestead exemption, your property taxes will increase. Be sure to check with your tax professional about all your needs before making the switch.