Rental Conversion Keeps Options Open
Suppose you’re a single thirtysomething who daily scours the personal ads in the newspaper. Will this be the day you happen upon your soul mate, the one with whom you wish to raise kids and spend the rest of your days? One never knows.
Today an unprecedented number of workshops and books are available to help escort you through the decades.
And for most people, the life journey now involves many unpredictable turns. “No matter how much planning you do, prepare for unexpected surprises,” advised Robert Trousdale, a ReMax agent who is an 18-year veteran in real estate.
What is one way to keep your housing options open if you’re a young single person hoping to marry or if you’re a person of any age who is uncertain of your career plans?
Seasoned agents like Trousdale suggest you consider selecting a habitat that could readily convert to a rental unit. That way you’ll be prepared if you need to move.
As a single person, perhaps you need only a condo-apartment, townhouse or small detached property. But if you happen to marry and become serious about having children, your needs could change dramatically.
Suddenly you may want a much different sort of property, perhaps one with a more spacious living space and larger grounds. And your dual incomes will let you afford much more than a sole salary did.
Don’t let uncertainty about your personal or professional plans keep you from obtaining a homeownership stake, said Trudy Richard of Coldwell Banker. If you’re careful in selecting a home to purchase and are willing to play landlord later if necessary, you needn’t postpone your buying plans.
Although those who sell a property just a couple of years after buying it can lose money on transaction costs, that’s not generally true for those who hold it longer and convert it to a rental unit for several more years before selling.
Here are half a dozen tips for home buyers:
No. 1: Buy a potential rental in a neighborhood with very few rental homes.
Ironically, a home has better rental potential if surrounded by owner-occupied properties, not other rentals, Richard said. In reality, those who live in their homes maintain them better than owners who reside elsewhere. Thus, neighborhoods where rentals are few are more appealing to tenants and gain value more quickly.
How can you find out the percentage of renters who live in a neighborhood where you’re planning to buy? A neighborhood association is a good bet.
No. 2: Pick a place where the rent you would charge is reasonable.
“Buy something affordable and more people will want to rent it,” Richard said. Only about 5% of renters are leasing voluntarily, while the rest are doing so because of income limitations, poor credit or a combination of the two.
Richard suggests a rule of thumb that applies to many (though not all) neighborhoods: Those buying a home they might like one day to rent out should avoid the top half of the market in terms of price.
As a prospective landlord, you should also avoid the bottom 25% of the market. Rather, you should select a place positioned comfortably between those two levels of the price spectrum.
Obviously, a lower-priced home will require you to carry a smaller mortgage. That in turn would make it economical for you to charge a more reasonable rent and let you cast a larger net when seeking tenants.
No. 3: Consider a location with built-in housing demand.
Not everyone can conveniently live near a university. Nor does everyone wish to do so. But if the idea suits your lifestyle, it could also suit your financial plans as a potential landlord. A property within walking distance of a thriving college campus has strong long-term rental prospects, said Trousdale, the ReMax agent. A continuing flow of incoming students virtually guarantees that demand for your home will remain strong.
The idea of investing in a university-area home is hardly a new concept. Many farsighted parents of college students have seen the advantages of purchasing a home for their offspring with the notion of converting it to a rental unit after the children graduate.
But it isn’t necessary to have college-age kids to take advantage of this scenario. Perhaps you’re part of a child-free couple pursuing a career in a field, such as entertainment or travel, that could require you to move soon.
Purchasing a home near a university could give you the chance to readily pull up stakes and still anticipate a steady rental income.
No. 4: Look for a place with universally appealing features.
No, your future rental unit doesn’t need to have formal dining room, a Jacuzzi or elaborate landscaping to retain its appeal to the general public.
But there are some amenities that are especially alluring to would-be tenants. Many renters crave the privacy of a detached property, and this is especially true for those who own pets, which are often unwelcome in apartment-style rental units, Trousdale said. To pet lovers, a place with a fenced-in yard is even more appealing.
Another lure is a country-style kitchen where residents can sit down and eat, as is a two-car garage that appeals to the nearly universal need for extra storage space.
No. 5: Call your accountant before buying a home you expect to later rent.
How would your tax and overall financial situation be affected if you purchase a home to live in now and convert later to a rental unit? That depends on the applicable tax laws and your particular financial situation. When it comes to an objective analysis, there is no substitute for the help of an astute accountant.
No. 6: Recognize that frequent shifts in job and lifestyle are common.
Once upon a time, you may have been widely admired if you made it to the 40-year mark before retiring from your company. But rapid job changes have become the norm. A major reason, Trousdale said, is that those who change jobs frequently are no longer stigmatized. Even late-life career changes have become more common.
Those who plan to buy a home now, with thoughts of possibly turning the property into a rental unit within a few years, may become still less of a rarity in the future, Trousdale said. “With the millennium coming up, people are more willing to make changes and are being encouraged to do so.”
Distributed by Universal Press Syndicate.
