Have you ever thought about buying a rental home and becoming a landlord? Maybe you are debating about whether you should sell your current house or rent it out, just like we are.
Last month I talked about whether or not we should pay off our house early. In this post, I talked about the advantages of paying off your home early and disadvantages to that as well. I also brought up the fact that we are debating about whether or not we should rent out our current home when we buy our new home next year.
We plan on living in our current home for at least the rest of 2013. 2014 will most likely be the year that we buy the new home unless something extremely awesome pops up this year.
And yes, don't worry guys, we already have a plan for how we will work everything out for when I pursue my passion.
Since we do know that we want a new house within the next year, we have been thinking a lot about whether or not we should rent out our current home. The monthly payment is currently around $960 a month (including home insurance and property taxes), and we would want to refinance that beforehand in order to eliminate PMI and to get a lower interest rate (and to save on interest).
I'm guessing that if we could eliminate the PMI and lower the amount in interest that we pay per month, then we could be paying around $800 or $850 a month for our mortgage, home insurance (I'm guessing this would increase with having renters instead) and property taxes.
Advantages of Renting Our House
Since I am looking to join the self-employment world eventually, we would like to become more diversified. Having a rental house will help us become more diversified. The additional income will be helpful as well.
We also bought our house for relatively cheap. We can easily rent out our house for more than what the current mortgage payment is. Plus, once we eliminate PMI and lower the monthly interest, we will be even more profitable.
I have looked at ranges for what we could rent our house for, and it could possibly go for anywhere around $1,200 to $1,500 per month. Our house would most likely be a good fit for a family, as our house is in a safe neighborhood that also contains two good elementary schools (they are literally inside our neighborhood). We also have a fenced in yard, the house is completely updated, and close to major roads and highways.
Disadvantages of Renting Our House
There are many disadvantages of having a rental house. We could have horrible tenants who will never pay a single month or maybe tenants who destroy the house. Maybe the future tenants will be double horrible and do both of these things.
We know of many people who have told us horror stories about their renters. Some didn't pay rent for over a year because the eviction laws here are tough. Some had their rental homes completely destroyed by their renters also.
If we sold our house right now, we would probably profit a couple thousand dollars (maybe $10,000 to $15,000) after we pay all of the selling fees and expenses. This means that we wouldn't have to be negative-anything when it comes to our house. We could then do something else with our future cash flow instead of throwing around $800 per month to our current home's mortgage payment when we rent it out. Maybe a different type of investment will be more worthwhile with fewer headaches? Would you put your cash towards a different investment?
Also, would the approximate $400 to $700 per month before expenses and taxes be worthwhile? Would the stress just be too much to handle?
Are you in the rental home market? Would you do it again?
Have you thought about becoming a landlord?