3 Things to Consider When Turning Your Primary Home Into a Rental Property
Article by: Admin
Turning your existing home into a rental property is a great way to take advantage of primary home loan interest rates and taking the first step towards building a rental portfolio. If you're considering this strategy, here are our top three things to consider:
1) Homeowner's Insurance - Your homeowner’s insurance policy will likely have a clause that terminates coverage if you decide to turn your home into rental property. It’s important to change your homeowner’s policy over to the rental property before any new renters move in. We also recommend six months of lost rent coverage to the policy (in case of fire/water damage where the tenant can’t stay there) to cover your mortgage.
2) Wear & Tear - If you put a lot of high-end finishes in your primary home, they could get damaged and the return from any rental income may be offset by having to make expensive repairs. Other items such as carpeted floors resell well but are not great for rental properties as they can require frequent replacement.
3) Tax Implications - As a primary residence, you can sell your primary residence exempt of capital gains taxes on the first $250,000 if you are single and $500,000 if married. You can also add the costs of any improvements you made to the home to the $250,000/$500,000. If you have built up significant appreciation, this is a very important consideration. Renting your principal residence means potentially forfeiting the $500k exclusion of gains from tax.