Profile picture for user8316267

Should I buy a house and rent it out?

I'm currently renting a house for $1500/month (3 bed 2 bath 2000 sq ft ranch).
I do have enough cash to put 20% down for a new home purchase ($250k - $300k). The problem is I am not sure if I'll live in the house for more than 1 or 2 years and I don't want to sell the house if I don't live there.
Will renting the house be a good option? Since I have already signed the lease till June 2013 and if my landlord is not willing to break the lease, can I buy a house and rent it out right away through a property management company?
It just seems that I am wasting money paying rent where I don't build any equity at all.

Thanks in advance.
  • July 04 2012 - Plano
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Answers (17)

Profile picture for howardft
In most cases it's better to buy than rent, especially since home values have dropped with the recent home bubble. With rent you're throwing away money that you can't recoup versus building equity with ownership. With interest rates as low as they are and lots of renters, now would be a great time for an investment property. Contact your local real estate agent and lender for more details. 
  • July 22 2012
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In this economy, at least in the pacific northwest, you currently get more home for your money buying than renting. I can literally buy a home with a $1300 mortgage and rent it for $1600 a month netting a $300/month positive cash. All the while the renters are paying off the mortgage for me.

So why don't more people do that? Well it boils down to a couple things for consideration....
- Do you have the ability to handle a few missed months if you end up with an extended vacancy period and can you handle paying for repairs if needed?
- Do you have the desire and ability to manage the property including handing tennant concerns and dealing with finances, collections, filling vacancies, etc?
- Do you have the credentials to be able to buy it such as the down payment and credit score needed? Many people who want to buy don't have this but it sounds like you do.
- Do you plan on keeping the property for more than just a few years? Is this a long term investment?

The last question is important because most experts believe that prices probably are not likely to rise again significantly anytime soon. More likely that they will flatline or even continue to decline a bit for a while. So if you plan to rent it for a couple years then sell, you might not come out ahead, especially when you consider the costs of closing on the transactions involved. However, if you plan to keep the property for at LEAST say 5+ years in a more long term investment situation, then buying an investment property is defanitely the way to go. Plus, you could rent it for a while and when your lease is up you could always move into it instead of continuing to rent it out.

  • July 20 2012
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Profile picture for Angela Newman
You might want to speak to a tax professional to determine how different your tax liability would be in the rent vs. own scenario.  If you cannot see your self living in the house past 1 to 2 years and you have not planned to be a real estate investor then you may want to consider some other tax shelters.  Once you add up the true cost of owning the home from your closing costs, and paying mostly interest your first few years it might not be a great investment after all.  Even in markets that continue to see growth the rise in equity is not growing at the rate that it once was at the height of the market years ago.  You might even discover that upon reselling your home in 1 to 2 years that you will end up paying more out in realtor commission and closing costs than you actually gained in equity in that short period of time.
  • July 17 2012
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Definately buy, no question about it.  You owe it to yourself to make payments for your own property rather than pay down someone elses.

The only time renting makes sense is if it is for a year or two at the most and preferaby a tax deduction for work somehow.

Interest rates are spectacular, banks have been bailed out.  It is a good time. 

Let me know if I can help you any further.  Nancy Sell
  • July 16 2012
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I would think about your longer range plans.  Are you able to be a "landlord" if you end up having to rent the home?  It's harder than most think.  If you will not be available, you may need to hire a property manager to take care of your tenants needs.  Home ownership has many benefits.  I know that you would like to build equity, but my feeling is that you should stay in your lease, keep a close watch on the market, I really don't see it going up in the short term when we are first seeing signs now of it stablizing.  Usually we need to see a few years of stable before we see any increases on price.  Remember as well that when you when to purchase a home for you to live in it may be more difficult for you to get a mortgage depending of what you plan to do with the rental home.  Banks do take into consideration the rental income but what if the value of your investment property dips? Chances are when you do decide where you want to live, there won't be much change in the home prices so you won't be missing out on any "good deals". If you follow the market and see the prices going up, I would revisit the situation. Nothing happens overnight, just watch for the trends.
Good luck.
  • July 16 2012
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Real estate is always a superb investment. There is many advantage to purchasing a home and renting it  out. The following would be tremendously beneficial, writing off expenses for maintenance on your taxes and appreciation gain overtime. There are a few decent property management companies out there, so you must do you diligence before hiring one. Things to ask about, bookkeeping, length of time in the business, referrals from the past and present clients.

The best advice, I have for you is to find a knowledgeable Realtor with experience working with investment properties and a real estate attorney in your local market.  
  • July 16 2012
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Renting to someone is a very good idea, especially long term. Ideally, you want to be making money over your expenses (mortgage, insurance, HOA fees, etc.) but even if you break even month to month, is considered a good investment. It's building equity, and depending on how old you are, a renter will eventually pay your mortgage off for you and then that much more money will be going into your pocket. Clearly a good move! The old saying "It takes money to make money" is very true in real estate but I think it's one of the most no brainer ways to do so.
  • July 16 2012
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I don't know how much it would cost you to break the lease but you might consider a couple of things. First of all, if you do not plan to live in this home, the financing will likely not be as attractive as for an owner/occupant. You will pay a premium for the financing because you will be an investor instead. Secondly, by not living in the home, I think you may lose the advantage of being able to use the interest as a tax deduction, which can be substancial. I am just saying that you need to look at such a large financed investment from multiple angles before you go for it, get tax advice from a professional and speak to a lender to find out what impact it would have on the financing end.
  • July 14 2012
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Profile picture for howardft
First, I find it wise to purchase a home for yourself, so that way you're not shelling out money to someone else, but rather you're putting money into an asset that usually appreciates over the years. Buying a rental is a great idea. Get in contact with a good realtor who can direct you to a home in a great location with a great ROI. 
  • July 13 2012
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Buying a home its a great way to secure your future.
Before you decide to invest you money in such asset you would need to estimate your monthly expenses compare with the income.
Right now is a very good time to purchase real estate!
If your math comes out right - dont wait!
Best Regards,
  • July 06 2012
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I agree with many of the comments.  You first have to find out the facts.  What is the lowest it would rent for.  Be conservative.  How much are the carrying costs times that by 10% and add it just in case something breaks or repairs need to be made. 

The rule of thumb is that if you make between 7-10% higher than your carrying costs it should be a good investment.  Make sure you buy in a good area where rentals will be desireable.  Good luck.  If you ever want advice I certainly would help in any way I can
  • July 06 2012
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The best thing you can do with your money at this moment according to big financial gurus is buy homes and rent them. Either way it will bea goos investment if your situation allows you to take on the loan putting down 20% will save you the PMI which can be significant. I recommend you obtain a home warranty from the moment you buy, this will help you manage and control maintenanace expense. They are well worth it.
  • July 04 2012
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There are financial considerations that no one has discussed.  What is the amount of rental income you could receive?  Will that give you the cash flow to cover your mortgage, taxes, insurance and any necessary repairs as they arise?
Meet with your accountant to determine what that rental income/depreciation deduction will mean for your taxes.  
I do agree with that owning property for investment is a good idea - as long as the numbers work.
Shelley Lindauer, licensed real estate salesperson
[email removed by Zillow moderator]
  • July 04 2012
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Profile picture for Debbie Jeffrey
I love the last line of your email!  You are absolutely right!

If you are going to purchase and rent in a year or two, that's a great idea!  Be sure to cover your bases by checking with your insurance agent on coverage on a home that's a rental and your local tax authority - I think that taxes may go up because you are no longer declaring your home as a homestead. 

Also, if you want to purchase another home after renting, make sure you can qualify to purchase.

Sounds like you are on your way to becoming am real estate investor!  Good luck!
  • July 04 2012
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Profile picture for Ofe Polack
As an investor, I would agree with Scott's advice.  Find yourself a good property manager, and buy only if you are going to remain in that immediate area.  Long distance investments don't always work out.  Good luck! 
  • July 04 2012
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In addition to Scott's good advice, consider that you live in Plano. The strong Texas economy and our steady market recovery, along with the low interest rates, make this an ideal time to purchase an investment property.
  • July 04 2012
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Absolutely! That is the definition of 'Buying an asset' - an asset makes you money...Period! A liabilty costs you money -0 every month - sound familiar? Most people buy liabilities and think they are buying assets. We are actually buying debt. So, buy, rent, have someone else pay the bills while you collect profit. MOST Importantly - Buy right. The right leverage in Real Estate is Inflation and Economy Proof!!
  • July 04 2012
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