With the increase in stamp duty after retaining an existing main residence and the change in taxation when buying real estate for rent, this is a more complex area where advice is needed. Can I rent my current home and buy another?
Rental rules when renting a house to buy another
Lenders will impose certain rules when converting their primary residence into a rented property. They need to be sure that you can handle two houses, especially if you do not have the experience of the owner.
You should check if you qualify for two houses without rent income. If so, you eliminate the need for additional formalities verifying future rent in your home.
Your home may not be worth as much as you think
The value of the property comes down not only to the location, but also to the type of residence you sell. Not all household assets are valued equally.
The current market value of your home is important because it will affect the amount of the mortgage given by the new lender on your next property.
Ideally, you would like to receive sufficient rent to cover your current mortgage, if not more. This way you can apply additional income to your mortgage in a new or second home. Therefore, contact your local property managers to find out why homes like yours are renting. You can even advertise your home for rent to see if you get any answers at the expected price.
Things worth knowing
- Rule 30 percent equity
Many lenders require homeowners to have at least 30 percent equity if they plan to keep it as a rent (and take on a new mortgage).
- 20 percent down payment
Another option you can have is to reduce your new home by 20 percent. This makes it possible to use the projected fair market rents to offset the mortgage payment.
- Get ready for high speed
The biggest mistake people make when they start as landlords is underestimating vacancy and turnover rates.
- Understand the real cost of ownership
Although the lender can tell you that you qualify for a loan based on calculated ratios and equations, you must consider the real cost of being the owner.
- Consider using a property manager
It is also reasonable to consider whether you will use the services of a property manager. If your budget allows it, it’s probably a good idea.
After confirming that you can turn your home into a rental, realistically expect its annual cost and get initial approval to buy a second home, you’re on your way to becoming a real estate investor.