Posted February 20th, 2013 No Comments
Although the real estate market has recently improved with higher values and lower inventories, more than 20% of homeowners owe more than their house is worth. Of those underwater homeowners that need to move, many are choosing to buy a home that meets their needs and rent out their current underwater home, as described here in Business Insider. Underwater homeowners should consider these five tips before becoming underwater landlords.
- 1. Think carefully before doubling down on mortgage debt.
- 2. Consider how you will manage your rental.
- 3. Avoid a cash drain.
- 4. Research your refinancing options.
- 5. Have an exit strategy.
The old adage says that when you have dug yourself into a hole, stop digging. Borrowing to buy a second home because you are underwater on your first home is a levered bet that housing prices will continue to increase. If housing prices do not continue to increase, you will double your trouble.
Living close to your rental will make management easier and give you peace of mind. However, absentee landlording is a growing trend, and LeaseRunner’s tools help to make the task easier. Consider professional property management if your rental has sufficient cash flow.
Make sure that your rental income will cover all of the expenses. Also, think twice if you expect a job change in the next two years or your household budget is dependent upon both spouses working. A vacancy and a job loss could leave you unable to pay both mortgages.
Today’s low rates and available credit may benefit your rental property. You might be able to achieve positive leverage, which is making money on the money you borrowed.
If being a landlord is merely a means to end for the time being, set a timeline or a milestone for exiting your rental property. Define a goal that you can control.
About: LeaseRunner provides tenant screening services that can be integrated with an online rental application and even your rental ads using our APPLY NOW button. Digital lease documents and online rent payments make LeaseRunner the best tenant screening service for any independent landlord and real estate professional.