What should I know about converting my primary home into a rental?
To sell, or to rent? That is the question facing those who have outgrown their home, or need to move for other reasons.....
Here are a few considerations to account for when making this decision.
Capital Gains Exclusion
If you’ve lived in your home for at least two of the past five years, you can exclude up to $250k in gains if you’re single, or $500k if you’re married. So if you’re close to having these types of gains, you may want to sell now while you fit under the dollar limits and meet the two-of-five criteria.
Down Payment On Next Home
You’ll acquire better interest rates on your next home purchase if you have more money for a down payment. The proceeds from your current home’s sale may be necessary. Otherwise, if you have additional resources, you may want to keep your current home as an investment property.
Being A Landlord
Finding tenants, responding to tenants, property maintenance, etc. Are you equipped to do this? Are you willing to hire a management company instead of doing it yourself? Will your new home be close to your hold home, making it easier to manage? These are all questions to ask.
Overall Investment Diversification
You’ll also want to consider your financial picture as a whole. Keeping an existing home as a rental and buying a new one will find you heavily invested in real estate. Does that match your investment objectives? Does it leave you too “house rich” and “cash poor”? Again, these are important questions to ask.
The tax reporting changes dramatically for a rental property, versus a primary home. You’ll want to know this information not only for the financial impact, but also for record-keeping purposes. Because of this, we highly suggest contacting a tax advisor, and any other financial minds you can speak with.
Feel free to use us as a resource...we’re happy to help!
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