One of the most important investments somebody can make is in their own home, and many people seemingly-lofty goals of acquiring an impressive portfolio of real estate. A common tactic investors start off with is to buy a second house and put the first house up for rent. There are benefits and drawbacks to renting your home, both of which should be carefully considered before moving forward with this investment strategy.
Pros of Buying a Second Home and Renting Your First
Additional Income
The income from renting out your first home can be used to offset the cost of a second home, or it can be put toward other household expenses. With this money, you'll have a better chance of paying for the charges associated with maintaining and preserving two residences.
Potential for Appreciation
In the long run, the investment value of a second home can rise dramatically, thanks to the appreciation that naturally occurs over time. This rise in value is good news for anyone hoping to make a profit off of real estate investments in the long run.
Diversification of Investments
Adding a second investment property to your portfolio is a great way to diversify your holdings and protect yourself from the effects of any possible shifts in the market. In addition to providing diversification from the volatility of the stock market, a second home can be a safe haven from financial disaster.
Cons of Buying a Second Home and Renting Your First
Financial Risk
Having two homes can increase your chance of incurring large expenses like repairs and maintenance. You could be in a difficult financial scenario if the rent you receive from your first house isn't enough to cover the mortgage on either properties.
Management Challenges
It takes a lot of time and effort to find renters, check their backgrounds, collect rent, and deal with maintenance issues. Hiring a property management business is an option if you are not up to handling these tasks on your own, but it will increase your costs.
Vacancy Risk
Because you still have to pay the mortgage and other bills, having your first home sit empty for a long period of time can be a huge financial burden. This danger is amplified in neighborhoods that tend to have high vacancy rates, thus making it difficult to find tenants.
Final Thoughts
The financial benefits of buying a second house and renting out the first are undeniable for those who are willing to take on the duties and risks involved. It's important to consider this strategy because it offers the possibility of extra income, rising home values, and diversification of financial risk. But a person who wants to invest should weigh these benefits against the possible financial risks, management problems, and vacancy risk before making a choice.
