Lecture Notes: Buying a Second Home and Renting the First

Introduction

• Consider buying a second home when your current home no longer meets your needs (upsizing, downsizing, or relocating).
• Renting out your first home instead of selling it can be a viable option.
• Emily from Heron Real Estate in St. Johns County, Florida, provides guidance on this process.

Initial Steps

1. Consult a Mortgage Broker or Bank

   • Mortgages for second homes have different criteria than primary residences.
   • Typical down payment for second homes is around 20%.
   • Lenders may require proof of cash reserves.
   • Fannie Mae Form 1007 may be needed for rental income estimation.

2. Consult a Real Estate Expert or Realtor

   • Realtors can provide rental comps to estimate potential rental income.
   • Using the same agent for buying the second home and renting out the first can streamline the process.

3. Consult an Accountant

   • Becoming a landlord affects your taxes; rental income is taxable.
   • Understand real estate tax laws and potential tax breaks.

Pros and Cons of Becoming a Landlord

• Pros:
  • Generate additional income.
  • Tax breaks specific to rental properties.
  • Expand asset portfolio and potentially start a real estate investing career.
• Cons:
  • Responsibility of handling repairs, maintenance, and potential vacancies.
  • Legal and financial implications must be managed carefully.

Important Considerations

• Mortgage and Insurance:
  • Check mortgage documents for clauses about renting out the property.
  • Update homeowner's insurance to cover rental property.
  • Tax status with the county might change, impacting exemptions.

Finding and Managing Tenants

Tenant Screening

• Perform background checks on all adults over 18.
• Verify stable employment and rental history.
• Consult previous landlords and personal references.
• Follow the 3:1 income-to-rent ratio rule.

Property Management Decisions

• Self-management:

  • Be prepared for direct involvement in repairs and rent collection.
  • Maintain clear financial records; consider separate bank accounts.

• Property Management Companies:

  • Typically charge 8-12% of rental income.
  • May also charge for tenant placement services.
  • Costs may be tax-deductible; confirm with your accountant.

Conclusion

• Renting out your first home while buying a second can be rewarding and financially beneficial with proper planning.
• Contact professionals (realtors, mortgage brokers, accountants) for guidance.
• Explore other resources and videos for additional insights and solutions.

• Recommendation: Subscribe to Emily's channel for more real estate tips and updates.