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If you want to buy a second home and rent out your first home, there are a few things to know before making the purchase.
Consider how a second home fits in with your other financial priorities, and whether you’ll be able to cover the extra expenses easily.
Also, understand the tax implications of a second home, including things like property taxes and capital gains taxes in the future.
Buying another home that’s within your budget will be a big help, too — you’ll want to make sure you can afford both mortgages, if needed, and still meet your goals.
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If you’re ready to move and you want to start earning rental income, you might be considering buying a second home and renting out your first.
Renting out a home on a full-time or part-time basis can be an excellent way to make some extra cash. But it’s also likely to bring its own set of expenses.
If you’re considering buying a second home and renting out the first, there’s a lot to consider before making your second home purchase and listing your home for rent.
Make sure it’s the right move for your overall financial plan
Any second home you buy should fit in with your other financial goals, not replace them.
Financial planner and Facet Wealth cofounder Brent Weiss suggests prioritizing your financial goals to see where a second home would fit. From saving for retirement to sending your kids to college, a second home shouldn’t stand in the way of your other goals.
While the extra rental income might be nice, it’s also worth considering the expenses. “A lot of people don’t realize all of the expenses that will come with it, and how it’s actually going to impact their cash flow,” Weiss says. “The down payment, the closing costs, all of these things are going to impact the cash they have on hand.”
You’ll need to consider saving more for home repairs, and either saving extra in your current home repair fund or starting a second one for your new home.
Understand all the tax implications in advance
If you’re planning to make rental income on one of your properties, there will be quite a few things that will change on your taxes.
When renting out a home, most people are able to deduct expenses in addition to mortgage interest and property taxes up to $10,000 per year, tax expert and CPA Lisa Greene-Lewis previously told Business Insider. Your second home’s bills, maintenance costs, and even improvement costs can become deductible expenses. However, you’ll have to pay income tax on the money your second home brings in.
Talking with a tax expert can help you get a better idea of what exactly to expect, and help you avoid any future surprises on your taxes.
Search for a home within your budget — and don’t overspend
Weiss says that it’s all too common for people to fall in love …read more
Source:: Business Insider