On occasion, the opportunity arises to buy a second home while you rent out your old one. It may be that you have to move out of state for work or have enough cash to make a smart investment in real estate. In any case, if you have the ambition, you can move to a new home while your first home pays for itself.

The Start Of An Investment Portfolio

When you take on landlord responsibilities, you move from the mindset of a consumer to being an investor. Owning investment real estate will improve your economic standing in the long term. Eventually, you will have the experience and assets to build a rental property portfolio that will generate income.

Moving out to a second residence is less expensive than remaining and buying a rental property. If you purchase an investment property with the intent of putting in a tenant it changes how banks see you. Your lender will have different lending criteria that qualify you for a mortgage.

Qualifying For A Second Home Loan

This strategy of buying a second home and renting out the first revolves around one precondition critical factor; coming up with the funds to do it. If you have the cash to buy the second home, you’re in great shape as sellers love cash buyers and you will be in an exceptional position to negotiate the deal that you want.

Most consumers do not have the necessary cash to buy a second home on hand, however and you will have to begin the qualification process with an existing mortgage that skews the debt-to-income calculation against you. If you have experience managing properties and a lease agreement in place, you will be able to count some of the rental receipts as income.

When you enter the investment property realm for the first time, you will need to qualify for a loan on the second home. Be careful that you don’t undermine your plans inadvertently. For example, you might trigger an acceleration clause that makes the balance on the first home due immediately.

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Buy A Second Home And Become An Investor

For homeowners who can purchase a second home, this is an excellent opportunity. If you have a high income about your present borrowing, then this may be a pathway to an investment portfolio. Starting with a single property that you know intimately is an advantage while you learn how to manage a property. There are tax advantages to rental properties, such as depreciation and 1031 sales.

As with all real estate transactions, build a relationship with a local broker or Realtor who understands your objectives. Find a tax professional and do the research to be confident in your decision. If you can get that first rental paycheck, you may find that, when you buy a second home and rent out the first, it signifies the start of a prosperous new phase of your life.