Renting & Buying Another?
A great way to capitalize on the equity that you have in your home would be considering renting out a house that you currently live in, and using this equity to buy another home. Should I rent out my house and buy another? This is a question that some homeowners might find they are thinking about. This question is especially important if the state is experiencing a housing crisis, and the value of homes have changed over the past few years. There are various reasons someone can have for wanting to rent a current home they live in, and buy another piece of property. These reasons include relocation, buying more space, capitalizing on equity, and using the rent as a second income.
Buy Better Property
One of the main reasons someone could have for renting a house and then buying another house might be the size of their current dwelling. For example, if a couple previously had a house within the city, but a new baby requires them to look for a bigger house in the suburbs to raise a family, then renting the current house can be an option. In this way, the couple can still keep the house that is in a great location in the city, but find something more suitable for raising a family. This home can be a great asset in the future to list on applications for car loans or education loans.
Release The Equity
A second reason, and a quite important one for keeping the current home would be to use the equity within the home. Equity is the market value of the home minus the amount owed for the mortgage. This equity is also the amount that the homeowner can use for financing on a new home. Equity is extremely beneficial in areas where the market value has increased considerably from when the home was purchased. This equity can be used as a mortgage loan for the new home, and it can be listed as an asset or collateral on another loan application
Receive A Second Income
A third reason that someone would consider should I rent my house and buy another is to receive a second income. Some real estate owners purchase a second or even a third home to use then as rental income. A simple two-bedroom house might start with a rental of $650 to $1000 depending on what city in which the house is located. This will be additional income that can be used to pay other bills or even the second mortgage. However, It will be necessary to check with the state laws regarding using rental income to pay a mortgage, as in some states the rent on the first home may not be used as repayments on a mortgage for a second house. In most states, this second income will also have to declared on tax forms along with the regular employment income during tax time. Therefore, it will be necessarry to maintain business records if you decide to rent your first home.
Web Source: Financial Web. “Buying a second home as a primary residence.” 2010. Available: https://www.finweb.com/real-estate/buying-a-second-home-as-a-primary-residence.html