There is no question that becoming a landlord is a fantastic way to build wealth and generate monthly income. One method savvy investors use to get started is turning their primary residences into rental properties when they move, instead of selling. While this is a great start to growing your rental portfolio, it is not as simple as moving out and finding tenants. There are three key factors to consider when turning a primary residence into a rental property that differ from purchasing a rental property upfront:
- Some mortgages have stipulations on changing from an owner-occupier to investor, including waiting periods, penalties, or refinancing to a more expensive loan. Be sure to check these stipulations and make sure the occupancy period on the mortgage has passed to avoid potential mortgage fraud.
- Homeowner’s Insurance does not protect rental properties, and it is essential that you get a special Dwelling Policy before renting out your home. Since rental properties are considered investments, they need extra liability protection
- Taxes are handled differently on investment properties then on primary residences. You will no longer qualify for a homestead exemption, which means your property taxes will likely increase. However, you will also be eligible for more tax deductions, so it should balance out. It is important to talk to a tax professional before making the switch.