The very first factor to evaluate is whether or not you can afford to own two properties. You may be able to refinance your old home or borrow against its equity in order to come up with a down payment on your new one. But, once you officially own both properties, you will incur expenses that you might not expect.
For example, there will be times when there are no tenants in your rental property. No matter how consistent your tenants might be there will come a day when you just can't find a renter to save your life.
Also, you will have repairs; which are not always as easy to plan for as you might assume. What happens when one of your tenants decides to leave the bathtub running for a few hours on accident? Or worse yet, what if they turn off the heater in the middle of winter, go out of town for the weekend and let the pipes freeze and burst? Sure, you'll plan for the occasional coat of paint or garbage disposal repair, but oftentimes repair bills come in much higher than you budget.
You'll also want to think about other factors that are out of your control. What will you do if you end up with a deadbeat tenant? Some areas take months to evict a deadbeat tenant. Will you hire a property manager or handle the property yourself? If you plan to live more than an hour away, you might want to consider turning over some of the hassle to someone else. For example, if you live in San Diego but your rental is in Laguna Beach, it will be a serious pain to drive all that way to show the property to prospective renters. But be careful! Some property managers charge ten percent or more of the property's monthly rent.
If you choose to sell, current tax laws offer you a window of opportunity to avoid paying taxes on the gains from your former home. If you lived there for any two of the previous five years, you can sell a home, even if it is currently used as a rental property and any gain on the sale of the house is excluded from taxation. The limit is up to $500,000 for married taxpayers filing a joint return and $250,000 for single people. You will, however, still be responsible for the home's annual property taxes.
Being a landlord may be a serious pain, but it also brings in extra revenue each month. It's up to you to decide whether or not you'd like to venture into rental property waters. Even if you try it and decide it's not for you, you can always sell the property and walk away without having to pay a heaping amount of gains taxes. If you are serious about the endeavor, talk with an experienced real estate agent about your options.
It's certainly a buyer's market. And while it's only house price growth that's slowing, rather than prices themselves, it's not clear whether there are ?bargain? purchases to be had.
So if you're thinking of becoming a landlord, is this a good time to buy rental property? We take a look at recent stories to see what the general consensus is.
The first story from the UK's largest letting agent Your Move suggests the answer is yes. It says there was a 21 per cent increase in the number of new lets starting in January and February this year.
Its research has shown that the credit crunch has caused a distinct increase in demand for rental property from tenants. And that's a trend that is likely to continue.
It's believed to be caused by people delaying their property search for a home to buy, because of the way the market is at the moment. In particular first time buyers without savings are finding it hard to get a good mortgage deal. So landlords who can leverage a sizeable deposit have an opportunity to buy and rent out.
Figures from the Council of Mortgage Lenders seem to confirm these findings. Its figures show buy-to-let lending came to more than ?24 billion in the second half of 2007. That's up from ?21 billion in the first half of the year, which itself was a billion up on figures from the second half of 2006.
More good news for people with rental property from the Association of Residential Lending Agents. Its research shows average rents in the UK have continued to increase dramatically over the last three months.
Between December and February the average rent for a UK house went up by four per cent, and 2% for a flat.
The association represents professional letting agents, and says its records show that when property prices slow or fall, demand for rental property shoots up. The proportion of its members reporting they have more tenants than properties is at its third highest level since records began six years ago.
More good news, this time from Which? magazine. The consumer watchdog says it's still possible to make a profit in the UK property market, despite the decline in price growth.
It has published its latest Property Investor's Handbook, which says that investors with the guts to take risks will still be rewarded. Which? actually recommends that instead of getting into rental property, you look at less conventional property investments. Suggestions it gives include buying a number of homes off-plan from a property developer, before selling them off one by one to buyers. Risky but with the potential for huge profits.
Another strategy it suggests is to snap up old commercial property and convert it into residential homes. Or to gang up with other investors and form a property fund to buy valuable land for construction.
It all looks good, but we'll give the last word to the Royal Institution of Chartered Surveyors (RICS). Earlier this month it revealed that demand for residential rental property continued to grow during the fourth quarter of 2007.
There is a caveat to that ? the rate of growth in the market fell for the second consecutive quarter and is now below the long run average for the sector. More than 82% of all properties were rented to individuals.
So, if you choose to become a landlord, this does seem to be a good time. Good luck!
Both Kari Shea & P Green are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Kari Shea has sinced written about articles on various topics from Real Estate, Loans for Home Improvement and Real Estate. Kari Shea, of , is an accomplished business professional and community leader in the San Diego, California area. With more than 45. Kari Shea's top article generates over 5400 views. to your Favourites.
P Green has sinced written about articles on various topics from Property Guide, Foreclosure Help and Real Estate. Visit Property Today to . P Green's top article generates over 135000 views. to your Favourites.