Are you considering turning your house into a rental when you move? Whether by default or something you’re looking to get into, real estate investing with your own home may be a smart move and a great way to get started in the business. Many people get into renting out their home when they decide to buy a new one and maybe they’re just not ready to sell. This can be a profitable rental strategy because you’ve already on the home for several years. However, there is a drawback; the capital gains tax exemption.
There are benefits to turning your home into a rental:
A low barrier to Entry – You don’t have to compete with other investors because you already own the home.
Cash flow – Depending on how long you’ve lived in the home you could receive a nice monthly cash flow from the rental payments. Of course, it depends on how much mortgage you owe, if any.
Management – No one knows your house better than you do and you know what it takes to keep up the annual maintenance. This is a great way to get involved in the real estate investment strategy by understanding your own property and managing it the way you would before jumping into a house you’ve never owned before.
But back to that capital gains tax exemption. The government gives homeowners exemptions for paying taxes on the profit they make from selling their home. This could be up to $500,000 for a married couple but to be eligible, the owner must have owned the property and resided in the property for two out of the last five years. If you have significant equity in the home and you are able to sell it without having to pay capital gains taxes, you saved a lot of money.
There are a few things we need to do when determining if we should rent our house or sell it. Determine how much equity you have in the home and how much cash flow the rental would produce. Talk about your goals. Are you looking to build an investment portfolio with multiple properties or are you looking to simplify? Make sure you know where the market is heading to the best of your ability. Is it more of a rental market, buyer’s market or seller’s market?
With you planning on turning your home into an investment or selling the house and using the proceeds to purchase another investment property, let Premier Team Real Estate help you meet those goals. Call us today for investment strategies.
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