How to Become a Real Estate Investor: Keep Your First Home
There are several paths to becoming a real estate investor. You can buy properties with the sole intention of using them as an investment, you can fix and flip properties or you can ease your way into purchasing properties. This last option is one of the most approachable options and can produce a lot of value for you over time.
Here are 3 reasons to keep your first property:
You Have Equity
If you’ve lived in a home for 5+ years you likely have some amount of equity in the property. You’ve been making mortgage payments while you’ve lived there giving you a head start to seeing some capital gains down the road. While you should be able to make money by charging a tenant rent on the property after you’ve moved out, the real cash comes from selling properties years from now when your equity is even more valuable. You have a 5+ year head start and will be able to see high gains sooner than if you were purchasing solely for investing purposes.
If necessary, you can also refinance or take out a home equity loan to make use of the equity you have in your home for repairs to your property before renting it out or to apply to a down payment on your next property.
Everyone’s situation is different, this financial analysis spreadsheet and the case study will help you make an informed decision. Talk to a tax professional* before making a decision one way or the other. It may be in your best interest to sell now.
You’ll Get an Upgrade
If you have a signed lease before buying your next property, you can claim rent as income to help you get into your desired home. This trick is how many people continue to buy properties. Each time you move out of one, you can claim rent as income to buy your next property. The standard model of selling as a contingency of buying is not the only way. Give yourself an upgrade by lining up a tenant for your property before moving onto your next home.
Long-Term Payoff
As mentioned above, real estate investing is a long term game. You should make income from charging rent (always charge over your mortgage payment). By using the rent to make your mortgage payments you are basically earning equity on a property for free. You’re not paying for the debt — you’re letting someone else do it. This means the longer you hold the property and rent it out the more equity you gain and the higher your gains will be when you decided to sell.
The key to this is managing the property well to avoid costly repairs and high turnover rates. Hiring a property manager for your property, even if it’s just one, will save you in the long run!
If you’re keeping your first property, or second or third, we’d love to talk to you about our property management options. Contact us today to learn how we can help you grow as a real estate investor!
*Metro REIG is a real estate and property management agency, we are not tax professionals. Please consult your tax professional before making any financial decisions.