Navigating Upsizing: How to Rent Out Your Current Home While Buying a Bigger One

Benefits of Renting Out Your Current Home

Steady Income Stream: Renting out your existing property can provide a consistent source of income, which can help cover the mortgage payments of your new home or be reinvested into other financial ventures.

Property Value Appreciation: By holding onto your first home, you give the property more time to appreciate in value. This can be particularly advantageous in areas with high growth potential, maximizing your return on investment when you eventually decide to sell.

Tax Benefits: Owning a rental property can offer various tax deductions, including mortgage interest, property tax, operating expenses, depreciation, and repairs. These benefits can significantly offset the cost of owning and managing a rental property.

Steps to Upsize While Renting Out Your Current Home

1. Assess Your Financial Situation: Before considering an upsize, review your financial health. Ensure you can afford two mortgages in case the rental property doesn’t generate income immediately. Consult with a financial advisor or mortgage broker to discuss your options and evaluate what you can realistically afford.

2. Understand the Rental Market: Research the rental market in your area to ensure there is a demand for rentals and that the income will cover your expenses. Understanding market rent prices and what tenants in your area are looking for will help you make informed decisions about both renting out your current home and what features to look for in a new home.

3. Prepare Your Current Home for Renting: Before listing your home for rent, make necessary repairs and upgrades to increase its appeal and rental value. Consider hiring a property manager if you prefer not to handle tenant issues, maintenance calls, and rent collections yourself.

4. Secure Financing for Your New Home: Speak with a mortgage professional about securing a loan for your new home. You’ll need to provide details about your financial situation, including the potential rental income from your current property. Some lenders may require you to have a signed lease agreement before closing to count this income.

5. Buy Your New Home: With financing in place, start looking for your new home. Consider your long-term needs, the location, and market trends. Work with a real estate agent who understands your goals of both buying and renting out properties.

6. Transition to Landlord: Once you secure a tenant, familiarize yourself with landlord-tenant laws in your area to ensure you comply with all legal requirements. Set up a system for managing your rental property efficiently, or hire a property management company to handle day-to-day operations.

Tips for Successful Property Management

Screen Tenants Carefully: Conduct thorough background checks on potential tenants, including credit scores, rental history, employment verification, and references to ensure reliability and stability.

Maintain the Property: Keep your property in good condition to attract and retain tenants. Regular maintenance can prevent costly repairs in the future and keep tenants happy.

Have a Solid Lease Agreement: Ensure your lease agreement is comprehensive and clear about the rules, rental period, payment expectations, and maintenance responsibilities. Consider legal assistance to draft this document to avoid potential disputes.

Conclusion

Upsizing your home while renting out your current one can be a lucrative strategy if managed correctly. It requires careful financial planning, understanding of the real estate market, and effective property management. By taking a structured approach and seeking advice from real estate and financial professionals, you can maximize the benefits of your investment and smoothly transition into your larger home.