I recently met with a friend who wants to rent her current house and buy a new one. While interest rates are low and the market slowly recovers, I suspect more people will want to do this.
Here's the note I sent her:
Preparing Your Current House:
- Make sure you're ready to buy another home. I will write this again because it's critical. If you plan on renting the first house, make sure you have a large emergency fund to pay the mortgage when there's no tenant.
- Call your current lender to check on refinancing your house. Don't worry if you're upside down. Just call and check on your options.
- If you can refinance, compare options based on the number of years you have left on the loan. If you have 23 years left on your current loan, ask for 20 and 25 year refinancing options. In other words, don't simply ask for the 30 year loan option.
-Here’s some info on how to calculate the value of a home.
-Here’s a blog post on refinancing.
-Here is an article on how to compare refinancing options.
- After refinancing (if you can), get a property manager. They will generally charge first month’s rent and 10% of rent going forward. Good managers make your life easier. Bad managers suck…they make life much harder.
- Start to market the house ASAP. ‘Pre-selling’ will give you a great feel for the market.
- When you (or your property manager) finds a tenant, make sure to add some renter’s deductible (e.g. first $50 of all repairs) in the contract and give discounts for multiple years.
Buying a New House:
- First, see if you're ready to buy a home. This video will give you some guidelines.
- Set your upper price limit at <3x your combined gross income. If you can get to 2.5x, even better. If you make $200K combined, you can afford $500K.
- Focus on school districts. Good schools means the value of your house is more stable. You won't find as many bargains but you also won't get crushed.
- Get a thorough inspection and price out the inspection. See if you can pay your inspector a little more to ‘price out’ every item. I had my contractor do it.
- Make offers on multiple points – price, closing cost, allowances, closing date, etc. This makes negotiating easier. Here are some tips on negotiating.
Keep in mind, this can be a long process. Be patient. Take your time with each step. A house is a major investment. Two houses is even bigger.
What else? What other tips do you have for renting a house? What about buying a home?