What are the Pros and Cons of Renting your home as an Investment? How do you make the investment work for you?

Question

To your advantage that is?

This is all new to my husband and I and we're looking for feedback from people who have experience in this and are making money in this type of investment. Thank you!

Answer 1

There are not enough pros to offset the biggest con- that is you'll eventually lose the excellent tax benefits when you sell your home.   As a married couple you'll shelter up to $500,000. in capital gains.   This is only for principal residences and more particularly you must have lived in the house three of the last five years.

Sell your home- take the tax advantage then consider buying an investment property with some of the proceeds.  And find a competent real esate broker to guide you through the process.

Answer 2

Need more info.

1) Do you mean you will rent out the entire house and you will live elsewhere?

2) You will rent out a spare room?

3) How many tenants?

If you have more than one tenant (or plan on having more than one tenant) your single family residence (SFR) will no longer be a SFR but an MFR (you guessed it, multifamily residence).  This may bring you zoning issues with local governments (for instance your house may be in an SFR only zone).  So check with the city/county first.

Then call your homeowners insurance.  Ask what provisions they have to cover tenant damage.  Every landlord can relate stories of the "tenants from h**l" and insurance minimizes the loss due to damage or theft.  If your policy has no such coverage...add it to protect _your_ property from them.

Are you ready to be a landlord?  Or will you hire a property management firm to run it for you?  I personally always use a mgmt firm and love it.

Consult an attorney about leases, tenants rights, FHA and your personal liability (you may be personally liable...consult an attorney here).

Typically I tell people to form an LLC, C-corp (S-corp) to own the property and pass on profits to yourself as liability shield.  I also would never take a tenant in my own home.  Ever.  I would consult an attorney and get some advice on this.

I will tell you that owning rental property and having a property mgmt company run it is great.  You get rents, appreciation on the property itself and depreciation benefits too!  The perfect trifecta!

Good luck.

Answer 3

I have no experience so my answer may not be exactly what you are looking for; but hopefully it will enlighten you somewhat.  I assume when you say renting your home you do not mean renting out a room to a college student but renting your whole house.  Actually, there are similarities.  

The big advantage is the tax break you will receive from the government.  You can deduct depreciation on your home from your taxes plus all other expenses related to your home including taxes, insurance, mortgage interest, maintenance, and even other expenses that you might dream up.  But the key is depreciation because that is pure gravy since depreciation normally is offset by inflation and appreciation.  

There are certainly cons.  The persons you rent to may not take care of the property.  This is the biggest con in my opinion.  Another is that the rent received might not cover the mortgage expense, maintenance, and taxes.  The last is that maintenance can be a real headache, especially if the renter calls you a 7:00 pm on Sunday night and tells you that a water pipe burst or the toilet backed up.  

I do know people who through depreciation have sheltered all of their income from taxes.  I also know people who through rentals have retired early and moved to Florida and have a beautiful house on the bay front.