My rental property makes $650 a month, but there were 4 things I had to do before I ever saw a dime
Courtesy Kelly Burch
- When I was shopping for my first house, I chose to buy a home that I knew would make a good rental later on.
- While renovating, I made choices that would be appealing to renters, even if they weren't my personal style.
- Then, I used a home equity loan to purchase a new, bigger home, while renting out my first.
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Four years ago, I was beginning the process of buying my first home with my husband. Today, I pay two mortgages: One on the beautiful, rural New Hampshire home that we live in, and another on that first home in a small city about an hour away, which we now rent out.In a short period of time, I've gone from lining other people's pockets with my rent money to turning a small profit on a rental of my own. Advertisement
1. Put emotions aside
My parents never owned a home. For 20 years, they rented the same house in a neighborhood that looked straight out of "Leave It To Beaver." My childhood on those streets - with wide sidewalks, towering maple trees, and beautiful Victorians - was idyllic.Still, I grew up thinking home ownership was out of reach for me because my parents were never homeowners.
When my husband and I started the process of buying a home, I was paralyzed by fear. I imagined everything that could go wrong and lead to financial ruin. In order to pursue home ownership, I had to make a mental switch and put those fears aside.
2. Choose a home wiselyThe budget for my first home was pretty low - about $120,000. My husband and I knew that with that budget, we were shopping for a "starter home" where we could live for less than five years. Advertisement
Still, we wanted to take advantage of being in the real-estate market long-term. We decided to try to find a house that would make a good rental after we outgrew it. That meant actively shopping with the rental market in mind.
We chose to buy in a town that had an active and competitive rental market. We narrowed our location further to a good school district that we believed would attract quality tenants. Then, we chose a small house with a simple layout that would be easy to manage as landlords.When we first toured the house (which is 900 square feet), I immediately ruled it out as too small. However, my husband pointed out that it checked all our boxes for a great rental property in the long-term. I remembered that was our main priority in choosing a home. Advertisement
I was willing to buy a home that was smaller than ideal in order to reach our long-term goal of having a good rental, so we put in an offer.
3. Renovate for durability, not personalization
The house we bought was a fixer-upper. Although it was structurally sound, everything needed updating. Over the three years that we lived there, we replaced the walls, ceilings, floors, and windows. We gutted the bathroom and kitchen, and improved the yard.While we were renovating, we didn't choose styles that fit our personal tastes. Instead, we focused primarily on materials that would hold up long-term but were cheap enough to replace through rental wear and tear. Advertisement
We also styled our renovations with renting in mind, choosing styles that were widely appealing. We put light colors on the walls, cabinets, and trims even though we personally prefer bold shades. All of this meant that when it came time to rent out our home, it appealed to a wide swath of renters.
4. Tap into home equityLast year we had a second child and knew that we had officially outgrown our starter house. We wanted to move into a bigger home and keep ours to rent, but we didn't have a down payment saved for a new house. Advertisement
Most people assume they have to sell in order to use the equity in their first home as a down payment on a new house. However, I made a call to the bank and realized I could take out a home equity loan to use as a down payment. This allowed us to tap into our equity while keeping our asset (the home).Each month, we pay $630 on the mortgage on the first house and $270 on the home equity loan for a total of $900, and we rent out the house for $1,550 - a profit of $650. Meanwhile, we live in a much bigger home in a nicer area and pay $1,450 to cover our mortgage. Advertisement
Today, my husband and I are enjoying our new home. We love renovating it with only ourselves in mind, and we know the small sacrifices we made with our first home to work toward the goal of becoming landlords were well worth it.
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