Kopa Real Estate Blog

Owning investment property can be a great way to build long term wealth. For the right person becoming a real estate investor can be an enjoyable and profitable experience.

We often talk with homeowners who are considering renting or selling their home. We also talk with many people who have rented their home for one year and after that have decided to sell.

Over the years we have found some homeowners who decide to rent their home do not realize some of the expenses they will incur when converting an owner occupied home into an investment property.

If you are trying to make this decision for yourself here are a few things you may want to think about. As always you should consult a tax professional to go over your specific situation.

• Renting your home may cause you to lose your home sale capital gains exclusion causing you to pay more income taxes in the future on the gain received when you eventually sell.  (hyperlink “home sale capital gains exclusion” to https://www.irs.gov/publications/p523/ar02.html

• Transferring your homestead exemption to a new property will likely cause the property taxes you pay to increase when the home is rented. When doing cash flow analysis on a rental property it is important to calculate your payment using a property tax figure without the homestead exemption.

• When the homestead exemption is removed from a property you also lose the 10% per year cap for the tax value. That means your property taxes can significantly increase if your home is currently assessed at a lower value than the market value due to the 10% cap.

• Your homeowner’s insurance will likely increase. Check with your insurance company to see what your premium will be once rented. It may be tempting not to tell your insurance company your home is now tenant occupied but if there ever is an issue with the home the insurance company may deny your claim.

• Will you manage your home yourself or will you hire a property manager. Property management fees are negotiable but we typically see fees ranging from 6-8% of the monthly rent.  Hiring a property manager who is the cheapest may cost you more money in the long run. Some property management companies are notorious for charging unnecessary fees particularly for homeowners who now live out of the area. Please let us know if you need a referral to a property management company.

• Selling your home tenant occupied may cost you money. Although we can always help someone sell a home tenant occupied it may be more challenging than a vacant home or one that is owner occupied. Tenants often aren’t happy about losing their lease and may make showings difficult and generally don’t feel any obligation to help make your home look its best for showings. This can cost you a significant amount of money if your home receives a lower sales price due to a disagreeable tenant.

If you are considering renting or selling your home and would like to talk about your financial options please call or text Eric Peterson at 512-791-7473.

Contact us for more information!