A New Home for a New Year

Posted on: 17 January 2017

If you've always wanted a way to diversify your household income without taking on a second job or roommate, you may be considering a venture into the world of rental real estate – especially now that the specters of the Great Recession and related housing and financial crises are firmly in the rear-view mirror. While this type of investment can often be a good way to shore up your future finances, it's generally more common for those who already own a home (or two) to continue buying real estate, and you may find yourself at a loss if you're entering the searching process as a lifelong renter. Here are some of the nuances you may encounter when financing your first piece of rental real estate before you've ever purchased a home. 

What are some advantages to purchasing a piece of rental real estate?

There are a number of benefits to homeownership on both the federal and state level – from banking laws that allow financial institutions to offer lower interest rates to those buying a home they plan to occupy to federal income tax credits and rebates for the purchase of one's first home. However, these benefits aren't usually available to those who are looking for their first rental property, and most will find themselves facing higher interest rates and a scaled-back list of potential benefits if they've already purchased their primary home. 

This can mean that by concentrating your rental search on multi-unit buildings (like duplexes, triplexes, or even small apartments), you may be able to take advantage of homeowner financing as long as you live in one of these units yourself. This can save you a significant amount of money (both in rental costs and financing costs) while allowing you to keep a close eye on your new investment. 

What should you keep in mind when selecting a rental property for purchase?

One potential disadvantage to entering this market as a lifelong renter is the learning curve often present when it comes to home maintenance, repairs, and other structural concerns. For example, someone who dealt with water damage in his or her "starter home" may be more attuned to signs of water damage in a rental unit and can immediately arrange for repairs, while someone who has relied on the superintendent or landlord to solve these problems in the past may not be as quick to take action (or even realize that action should be taken). 

However, these challenges can usually be met by enlisting a property manager, handyman, or other experienced maintenance professional to help you tackle your property's physical needs. 

For more information on real estate, talk to a professional.