If you’re moving, no longer want to live in your primary residence, or are upgrading to a bigger residence, turning your current home into a rental is one option. However, there are many considerations, and it is not always the right decision. Redmond property laws mandate what you can and cannot do with property in certain areas, and, for example, a single family home has to remain a single family home, even if you’re renting it out. The following tips from local Redmond property managers should help you decide if renting out your residence is the right option for you.
Is It Right For You?
The most important thing to consider is whether or not renting out your residence is actually a good idea. The most common case in which it is not is when you owe mortgage on both properties, and the income earned by renting out the property does not have the same value as that required for capital gains tax, property tax, insurance, maintenance, mortgage, and mortgage interest rates.
For example, if you rent your home out for $2,000 per month, pay 30% in taxes, and are paying 8.5% on a $400,000 new home, then renting your current home out might not be a good idea, because you would lose less money in the short term of 5 to 10 years by selling the current residence, and then incurring less debt on your new residence. However, if you don’t currently owe a mortgage, can consolidate to a low mortgage, or you can calculate the total gains, minus taxes, and maintenance fees, as more than the total of interest paid on your mortgages in that time, then renting your unit out is a good idea.
One easy way to decide is if you intend to move back into the residence within 6 years. This allows you to rent capital gains free, which makes it considerably more affordable to rent.
However, in most cases, if you are buying a new home, you are better off selling the old home, and then using that to pay off your existing debt on the new home. Unless you already own the other home, you could actually lose money. Of course, this is tax deductible in most cases.
Redmond Rental Rates
Part of your calculations should include local rental rates for homes in your area, of the same size, and about the same quality. Because these rates change frequently, it is always important to look around, and check sites like Zillow to see what current rates are. So far in 2014, single family homes in Redmond average between $ and $3,500 per month, which means that you can most likely net around $20,000 per year after taxes, maintenance, and fees. If this covers interest rates on both of your mortgages, with plenty of leeway in case you don’t rent out immediately, then renting out your Redmond property may be a good idea.
If you’re moving to another part of the Seattle area, moving out of state, or don’t want the hassle of handling renters, contact SJA for more information about how a Redmond property management company can help you.