Want to Rent Out First Place, and Buy Another Place (tenant, mortgage)

[justtitans]

Right now I currently own a condominium in an area that has just absolutely lost any type of value. My plan is to move in another year or two. Although things may change between now and then, I'm thinking for the short term, I will make more profit by renting out the place. My question for anyone who may have done this before, how did you go about it? Did you get a lease agreement first so that you could use the profit for rent as income to get approved for your next place? And if anyone decide to get a property manager, how long did it take from the time you hired them to the time you were prepared to put the place on the market?

[Squirl]

Although I invest in property with the goal toward rehabbing and reselling (aka Flipping), in these times it has made more sense on my latest properties to lease them out for a few years and take income from them rather than sell at low margins. The risk I have is damage/wear to renovated properties that will need some more rehab work before selling time. You will face this same issue, so factor that in. Go find reading material about being a landlord and learn the tactical points you need to know. I manage my own properties and in general think reasonable people who really educate themselves do a better job than PM's if they live near their properties. If you decide to take out another mortgage, check that your current mortgage permits you to lease out your condo. Some mortgages have exclusions. But if that's all good, then wait until you have a signed lease and a few month's of tenant payments before applying for another mortgage. Your condo mortgage will be considered a debt and the tenant's lease payment will be considered income for your new mortgage.

[justtitans]

Originally Posted by Squirl

Although I invest in property with the goal toward rehabbing and reselling (aka Flipping), in these times it has made more sense on my latest properties to lease them out for a few years and take income from them rather than sell at low margins. The risk I have is damage/wear to renovated properties that will need some more rehab work before selling time. You will face this same issue, so factor that in. Go find reading material about being a landlord and learn the tactical points you need to know. I manage my own properties and in general think reasonable people who really educate themselves do a better job than PM's if they live near their properties. If you decide to take out another mortgage, check that your current mortgage permits you to lease out your condo. Some mortgages have exclusions. But if that's all good, then wait until you have a signed lease and a few month's of tenant payments before applying for another mortgage. Your condo mortgage will be considered a debt and the tenant's lease payment will be considered income for your new mortgage.

So what would you suggest if that place is my current primary residence?

[Chuckity]

Originally Posted by Squirl

But if that's all good, then wait until you have a signed lease and a few month's of tenant payments before applying for another mortgage. Your condo mortgage will be considered a debt and the tenant's lease payment will be considered income for your new mortgage.

Most lenders I've found require 2 years worth of tax returns to be able to consider the rental income.

YMMV.

[Squirl]

Originally Posted by meatkins

So what would you suggest if that place is my current primary residence?

*Make sure your current mortgage allows you to rent out the place
*start reading (library books) about being a landlord
*Talk to a lender about your idea to get a feel for what you could afford in a new mortgage (learn what kind of rent you could get for the place and factor in your expenses)
*Make a plan for (temporary, initially perhaps?) housing for yourself once you lease out the condo

[chicagojlo]

You also have to check if your association allows you to rent the unit.

Also bear in mind you'll lose the homeowner exemption on your property tax, as well as the fact that your homeowners insurance will increase if it becomes a rental.

I'm kind of surprised at the thought that you could rent your place out for a profit but couldn't sell it for what you owe. Is it more that you can't sell it for what you want to sell it for and actually have a low/no mortgage, or have you not really researched market rent for your area?

[justtitans]

Originally Posted by Squirl

*Make sure your current mortgage allows you to rent out the place
*start reading (library books) about being a landlord
*Talk to a lender about your idea to get a feel for what you could afford in a new mortgage (learn what kind of rent you could get for the place and factor in your expenses)
*Make a plan for (temporary, initially perhaps?) housing for yourself once you lease out the condo

Do you have any titles to any of those books in particular that might be a good read?

[justtitans]

Originally Posted by chicagojlo

You also have to check if your association allows you to rent the unit.

Also bear in mind you'll lose the homeowner exemption on your property tax, as well as the fact that your homeowners insurance will increase if it becomes a rental.

I'm kind of surprised at the thought that you could rent your place out for a profit but couldn't sell it for what you owe. Is it more that you can't sell it for what you want to sell it for and actually have a low/no mortgage, or have you not really researched market rent for your area?

Part of it is that I probably won't be able to sell it for what I want, but also I realize that there is a glut of properties on the market in my area. It would be very difficult to compete against those especially considering people could buy houses for just a little more than what they would pay to get a condo like mine. My hope is if I rent it out for a year or two, that perhaps the property values may go up in my area and make it profitable again. At this point I basically choosing between at best breaking even or making about $300-$400 more a month.

[Karen59]

I am in this same situation. I went through the process of loan application to buy a house while currently owning my condo. (I did this twice, and in both cases unfortunately, the housing deal fell through because of inspection issues)

In the first case, I still owed a mortgage, and the bank treated my condo as a liability--a debt, not an asset, even though at that time, I only owed about 5,000 on it. I had to show that I had enough income to pay my new mortgage and property taxes PLUS mortgage property taxes and maintenance fee on my old place. I also had to have enough money in the bank to pay these items on both properties for a period of time should I lose my income.

Next time I applied, about a year later--I had payed off the mortgage and had no mortgage on the condo. I thought I could list it as an asset--no, it is still a debt, a liability. I have to show I can pay maintenance, insurance, property taxes just like before.

Potential rental income couldn't be used as income. The equity in my condo is not an 'asset'. That's how it was for me. But I didn't shop around for lenders, maybe a different lender would be different.

Edit: this post sounds so negative. I wasn't really upset or anything--I just found the process kind of interesting. I really though my condo would be an asset, but interestingly, no, a debt. It's also such a cheap little thing--I have no idea how this process works with more expensive properties.

[davecj]

Originally Posted by Chuckity

Most lenders I've found require 2 years worth of tax returns to be able to consider the rental income.

YMMV.

This is quite true. Guess how I found out