Selling your first home when it is time to move out always seems like the only viable option when vacating. However, it always ends up in raw deals, more so if you are desperate or clueless about the market rates. However, it doesn’t have to be that way. Turn your first home into an investment whether you are moving out or still staying at the property. This article discusses how to turn your first home into an investment and underlines why it may be the best idea.
Despite the difficulties you may encounter on your path to homeownership, you will discover that it is a great way to jump into the endless ocean of real estate. Your first home can allow you to access bank loans and get extra income to pay your debts. Approach a property lawyer who will clarify the many grey areas for you when you decide to turn your first home into a rental property as an investment.
In-Depth Guide to Help You Turn Your First Home Into a Real Estate Investment
- Getting the right insurance and self-protection channels
- Securing the required permits that allow for the lease of a home into a rental property.
- Finding tenants, setting rules and property upgrades, maintenance, and repairs.
- Understanding the provisions in the law for turning residential homes into rental investments within your municipality is a must
- Deciding between landlord or property manager options
4 Reasons Why a First Home Is an Investment
1. Being young allows you to handle more risk.
The probability of owning your first home instead of renting is high when younger with the proper financial discipline. You have fewer obligations and can save up more. A home is yours while a rental apartment isn’t.
2. You can get the best bargains in particular real estate markets.
Consult a financial expert to find the best home ownership deal you can afford from the real estate market. You can invest in a first home at a significantly less amount than the market value. The secret is to find a property the bank is disposing of at a throwaway price.
3. Your first home can be a substantial source of extra income.
You can purchase a home to rent out. With tenants, you earn money to re-invest and pay debts and bills.
4. Take advantage of housing loans to invest in a home.
There are available loans that allow those who don’t have the required credit to own homes as long as they live in the property they want to purchase. To get around it, buy a home with rental units and make one unit your primary residence if you are wondering how to turn your first home into an investment. Turn a loan to your advantage by investing in a first home.
Steps on How to Turn Your First Home Into an Investment
1. Consider whether to do upgrades and repairs
Upgrades and repairs are a weighty issue if you are considering how to turn your first home into an investment. You may have to do roof repairs depending on the state of your roofing before you let in a tenant or two. Property upgrades are necessary only if you intend to charge higher prices for the property. Prudently ensure upgrade costs don’t exceed your rental rates.
2. Work around your mortgage financing.
Sit down with an accountant and determine if and how to refinance your mortgage. Avoid violating occupancy clauses because the banks will punish you heavily for that. Renegotiate mortgage financing when you turn your first home into an investment to avoid problems with the mortgage lender.
3. Get the right up-to-date insurance.
The right updated insurance protects your house, you, and your family from liability. Get landlord insurance that covers the building for damages on the property, maintenance of equipment, protection of the sheds and outer buildings, and major or minor accidents within the property. Insurance may save you on a bad day when you need the services of a roofing contractor for a total overhaul of your roofing or minor repairs. Landlord insurance is slightly more expensive than basic home insurance, but it will save you because it covers more. You can start shopping for one by looking at the consumer rankings within your locality.
4. Protect yourself from liability
Turning your first home into a rental investment exposes you and your family to liability. Potential and actual tenants may sue you for discrimination or accidents at your property. Purchase an umbrella policy or create a limited liability corporation to separate you legally from the property. A proper real estate attorney will help you navigate this hurdle. Without legal protection, you will face unnecessary lawsuits, even on silly things like trying out new landscape design ideas on your property that do not affect others. Safeguarding yourself from liability should be at the top of your priority list as you think about how to turn your first home into an investment.
5. Get the required permits.
Converting a family home into a rental premise or having both requires the right licensing from the authorities. Trying to ignore permits will land you and the innocent tenants in trouble with the authorities. Never ignore authorization when considering how to turn your first home into an investment.
6. Know and act within the law
There is no way to successfully turn your first home into a real estate investment by disregarding the law. Befriend the law when considering how to turn your first home into an investment. The law will not forgive you for what you don’t know. Visit the local town housing department to get acquainted with zoning restrictions, tenant rights, property taxes, and limits to occupancy within the area. Your home turned rental property is a business and must be treated thus. The law can specify that; you can only put a wood fence around your property and nothing else for fencing, or you pay dearly for such disregard. An attorney may charge you for consultation, but it will save you.
7. Decide on what to charge the tenants based on expert market-based information
With everything in order, you are ready for that extra income. As the contractor does the final touches on the new roofs before the tenant gets in, evaluate your costs and give yourself a profit margin. The trick is to charge a realistic figure that works for both. A real estate agent helps a lot with this.
8. Decide if you want to be the landlord or you want a property manager.
Being the landlord is demanding. As a landlord, you make all decisions, including the color of the garage doors, apart from collecting rent and chasing debts which can be exhausting. A property manager handles the stress on your behalf but at a fee. Your decision must stand on what works best for you under the circumstances. Go for what is benefiting the property and your family. Going for an agent or remaining the landlord is a must when navigating how to turn your first home into an investment.
9. Set clear ground rules of engagement at your property.
Define the ground rules or watch as people take advantage of you. State what is allowed at your property and what is not allowed. Define occupancy limit, the pets at the premise, garbage handling, yard maintenance, cleanliness, and right of entry. With the rules in place, create a precise tenant application form or customize an existing one from the free online platforms.
10. Create a comprehensive tenants application form for your property.
A good tenant’s form provides vital information and screens the tenants. The details include employment status, official identification, marital status or family size, and others. To prevent conflicts with the law on discrimination, steer off from questions about race or religion. Include an application fee for facilitating the running of background checks though the fee is not mandatory. It should depend on what works for you.
11. List your property to find a tenant.
When you complete setting up everything, list your property on real estate sites. For better results, include professional photos of your property that potential clients can view. You can deal with the applications that come in yourself or hire a real estate agent to handle them. It is a good idea to give all the interested potential clients applications to avoid discrimination lawsuits even though it sucks.
12. Run all the necessary background checks on qualifying tenants to get the right tenant
Background and credit checks are a must. Some companies charge between $25 and $35 for the service. Solid references and a gross solid monthly income of 3x the rent plus a record of stable employment for a year are the qualifications to consider. They are a proper basis for decision-making on the tenancy. Patience is the key when turning your first home into an investment. It gets you the right tenants.
Here Are a Few Common Questions That Are Frequently Asked
- Can pets be banned from my rental property?
It is tricky because this depends on the local laws and their enforcement. One cannot ban emotional-support animals like dogs and service animals in most municipalities.
- Must I remodel my home for it to be a rental?
Not really. Remodeling depends on the rent you intend to charge and the condition of your property. Upgrades will cost tenants more.
- How can I screen the tenants who express interest in my listed property?
It is your responsibility to screen the tenants who show interest in your listed property when considering how to turn your first home into an investment. You can demand a credit score that meets certain thresholds, require references from former landlords, find out the income against your house rent and engage professional companies to run background checks. A good screening process is uniform and guided by the law to avoid discrimination.
- Is investing in a home worth it for a homeowner?
Investing in your own home instead of renting raises your worth. The Federal Reserve Survey of Consumer Finances of 2020 concluded that homeowners were worth 40 times higher than those renting. Homeownership is a smart financial move you need to consider if you want to raise your worth.
- Will the prices of houses go down in 2023 according to recent trends in real estate?
The trend in the growth of house prices is predicted to flat line in 2023 based on recent market trends where mortgage approvals and retakes have witnessed a major decline similar to the pre-pandemic levels.
Your first home can be a life-changing investment that earns you the much-needed extra income or assists you settle your mortgage loans and debts. To succeed, act within the law, have the required permits, and get the right insurance. Safeguard yourself and your family from legal battles arising from letting out your property. Use the LLC option or purchase an umbrella policy. It is not about getting tenants; background checks are mandatory to sieve the unqualified. You can be the landlord or use a real estate manager as you turn your first home into an investment. Ensure you don’t defy the mortgage conditions; otherwise, the bank or your lender will make your life a living hell and the venture a painful experience. There is no reason why your first home cannot be an investment if you know what to do and how to go about it, so go out and revolutionize everything.