When you buy a home, you’re likely making one of the most expensive investments that you will in your lifetime. Despite this, in many cases, buying a house can actually turn into a profitable venture!
If you’re considering turning your home into an investment property, you’re in luck. In this article, we’re going to cover 5 key steps you need to follow in order to turn your home into a lucrative investment property.
What is an Investment Property?
An investment property is typically considered any property you buy to generate money from. Often, investment properties aren’t purchased for personal use, but rather their sole purpose is to one day generate a passive income. When you’re buying any type of house, you need to be clear on the three kinds of property you can buy:
- Primary Residence: A home that serves as the main place of residence for the homeowner. You may not live in it full-time, but you’re in it a majority of the time.
- Secondary Residence: A home that a homeowner lives in some of the time. It may or may not be able to be rented out while it is vacant, depending on the home’s precise definition (for taxes and financing)
- Investment Property: A property owned exclusively to generate income from rent, or the eventual profit of its sale. It typically isn’t used for any sort of personal use.
It should also be noted that properties purchased with the intention of flipping aren’t technically investment properties, since investment properties are held for longer periods of time, allowing their value to grow.
Can a Primary Residence be an Investment Property?
When it comes to purchasing a home, the classification of the above types matters greatly. In most cases, only one home can be considered a primary residence. However, if you purchase a home that you intend on living in for less than 6 months after closing, then selling for a profit, it needs to be classified as an investment property.
So, if you’re going to live in your home longer than 6 months after closing, it can still be considered a primary residence, even if you intend to profit off of its sale in the long run.
Making the Move: Turning Your Home Into an Investment Property in 5 Steps
If you’re looking to generate income or profit from your home, there are a number of different steps that can be taken. Below, we’re going to go through the steps you need to turn your home into an investment property with the intention of renting, as well as what to do to profit off its eventual sale.
Step 1: Make the Right Decision
This first step is less about doing and more about deciding. An investment property is a great way to make extra money and diversify your income, however, it isn’t for everyone. As such, you need to take a look at the benefits and drawbacks of having an investment property, like Miami Beach apartments for rent.
- An exceptional way to build wealth
- Allows the property to grow in value as it ages and the markets change
- Some tax deductions are available when renting a house out
- Managing a rental independently can be time consuming
- There are additional fees to consider, like real estate attorney fees and landlord’s insurance
- Rentals can stay vacant, meaning that they generate no income
An investment property comes with risks, of course. Make sure you make the best decision for your financial future.
Step 2: Change Your Insurance Policy
When you turn your home into an investment property, specifically geared towards renting your home out, you’ll need different insurance coverage. Often, you need to change from a homeowner’s insurance policy to a landlord’s policy. This is going to provide all of the coverage you need in terms of damage to the home and any liabilities having to do with renters.
Step 3: Invest in the Home
For a home to be an appealing rental or a profitable endeavor, you need to invest in the home itself. This is going to entail both cosmetic investments and practical investments.
First, make sure that you put money into the appearance of the home. You’ll want to make sure the home is appealing, that way you can attract renters or buyers.
Now, the best way to make sure that an investment property sells for more than it was purchased for is by updating it. Get new appliances that are energy-efficient, and update things like windows and HVAC systems. These may cost a pretty penny, but they’re worth it in the long run.
Step 4: Research the Rental Market
If you’re trying to turn your home into an investment property, you’ll need to look at the other properties in your area. This is going to help you set a competitive rent price, as well as make your house more appealing than the competition.
As you look at the competitors in your area, make sure that you’re going to be able to cover all of your rental property’s expenses. If the rent that others are charging won’t cover what you’re paying for your home, then renting may not be the best option for you.
Step 5: Learn How to Be a Landlord
This isn’t as easy as it sounds! Being a landlord entails learning about how to screen tenants, collect rent, and complete the necessary duties associated with your investment property. A lot goes into being a landlord, and it isn’t for everyone. Make sure you know how to be a landlord before becoming one.