Owning a rental property is a smart investment because real estate has consistently out performed stocks over the last 20 years.
If you're thinking about turning your home into a rental property, this article will offer you insight based on the experiences of real people who have taken the same step as you.
The accidental landlord
I became what's known as an "accidental landlord," meaning I didn't plan to ever be one, and I knew nothing about the business. As such, I made just about every mistake possible. But as soon as home prices started to rise again, I sold the home. I then added my savings to the sale proceeds and bought my first intentional rental property in a place more favorable to real estate investing: Atlanta, Georgia. (Houses are more affordable here. The typical home value in Los Angeles is $913,754 compared with Atlanta's typical home value of $349,162, according to Zillow.)
Can't sell the property
As the housing crisis taught us -- homes don't always appreciate. If you bought a home at the top of the market, for example, and now can't sell it for what you paid, you might want to rent the property. The market usually changes eventually, and when it does, if owning rental property isn't for you, you can sell at that time and come out ahead of the game. Or you might find that you don't want to sell after all, particularly if the rental income you're earning has been steady.
Some people can live for free by turning their home into a rental property. Doing so is called "house hacking," which has financial benefits in and of itself, and it can kick start a career in real estate investing.
House hacking involves buying a home as your primary home, which can get you a more favorable mortgage interest rate than if you were to buy a house as an investment property. Once you buy the home, you must understand the terms of your mortgage, as you generally need to live in the home yourself for a certain amount of time before you can turn it into rental property. The standard is typically a year, but this can vary. Some homeowners rent a room during this first year of ownership, or they use the property as an Airbnb, leaving the property when someone wants to rent it.
If allowed in your jurisdiction, you could add an accessory dwelling unit (ADU) -- a small, independent residential dwelling, to your property and rent that out. You would need to check your town's ordinance to determine whether an ADU is legal.
Another popular way to house hack is to buy a multifamily property, such as a duplex, triplex, or quadplex. You would live in one unit and rent out the other or others. This is a great way to get into the rental property business, but there are a few downsides:
- It's more difficult to find these types of multifamily properties.
- A multifamily property is usually more expensive than a single-family house.
- You'd be living alongside your tenant, meaning they can more easily and more often request your services.
A renter society
I started as an accidental landlord. But I now understand the huge market for rental properties. I firmly believe homeownership is the best way for people to gain financial security, but not everyone is ready to buy a home or even desires to. So a rental market will always exist. And from my experience, many people prefer renting from mom-and-pop landlords like myself over large and impersonal institutional ones.
Contact JD Homes
At JD Homes, we offer full service local property management that will save you the hassle of managing your rental property on your own.
Our company can offer yuo a host of services including rent collection, maintenance and customer service so that you can have confidence that your property is being rented for top dollar.
To learn more about the property management services that we can offer you, contact us today by calling (770) 506-2630 or click here.