In the current housing market, people are coming up with creative ways to capitalize on the many low-cost homes becoming available. Purchasing an investment property to rent out, while you continue living in rentals, may be something on your horizon – but are you sure it’s the right choice for you? Take a look through the pro’s and con’s of buying an investment property versus living in your own home to assess your next steps and make the best decision possible.
In Favor of Living in Your Own Home…
Homeowner Grants/Tax Credits
As a first-time homeowner, you may be eligible for some sizeable grants, tax credits, or other support programs to help get you into your first home. Those grants and programs are often available through both local and state offices, and can make an enormous difference in your financial ability to land yourself the home you’ve always wanted right off the bat.
Avoid the Pitfalls of Renting
Once you move into your own space, it’s yours. You no longer need to worry about going to your landlord for approval of every change you want to make, but instead decorate and remodel as you please. You also know that your hard-earned money is being invested in a home that you’ll continue to benefit from long into the future — whether that’s the far-off day when you pay off your first mortgage, or when you decide to size up and sell.
Owning Your Home Provides a Sense of Stability
If you’ve ever had the worry that your landlord might ask you to move out for renovations or some other reason, you know how destabilizing it can feel to suddenly not know where you’ll live. Buying a house means you’ll never have to worry about that nightmare again. You always know where your home is, where your belongings are, and rest easy in the knowledge that nobody can tell you to move out.
No Capital Gains Tax if You Sell
When selling your primary residence, you don’t have to pay capital gains tax — which can cut into your profits if you sell an investment property.
No Added Costs of Maintaining a Rental Property
You may be thinking that the investment property will be a great source of income, but it comes with its own costs too as you are faced with yearly maintenance. There are certain requirements of you as a landlord that don’t exist when you live in your own home, meaning the pressure is off.
In Favor of Buying an Investment Property…
More Tax Exemptions
Because your investment property is tied to your income, you can write off investments that you make in the property for improvements and claim deductions for interest payments on the mortgage. When you live in your own home, the available tax deductions and write-offs will likely be fewer.
If You’re Living There, It Isn’t Making Money
Unless you rent out a room in your home while living there, it is unlikely to ever be a source of income rather than a destination for your money. Investment property can go the other way.
You Don’t Have to Sacrifice Lifestyle for Growth Potential
If you’re living in a fantastic apartment in the city but can only afford a home that’s out in the suburbs, you might be better off purchasing it as an investment. Do your research to buy in a neighborhood that is up and coming and you can watch your home’s value appreciate from your spot right in downtown.
Gear Towards a Cash Flow Increase
If you stack the deck properly by choosing a lower-cost rental for yourself and gearing your rental income in the positive, your property can be a long-term asset to provide income well into the future. If you can cover your own rent in the process, you’re set up for financial freedom.
Gain Equity Faster
If the income from your rental is greater than the mortgage itself, you can use that additional income to pay off the mortgage faster and gain more equity. That could mean you increase your rental portfolio if it interests you, and can see the end-point for this mortgage sooner rather than later. Imagine that – just income, no mortgage? You’ll be well situated then!
If you’ve reached a point in your financial awareness that you’re wondering how to start investing while still renting, investment property may just be the answer. Be sure to use only the best moving companies as you get the new home set up for your renters — or if you yourself decide to move in!