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  • Writer's picturetherosaioteam

Why Keeping Your Home as a Rental Property Could be the Right Move for You

If you're a homeowner who has outgrown their current home but has an interest rate below 5%, it might be tempting to sell your home and buy a new one. However, there's another option to consider that could help you build long-term wealth: turning your current home into a rental property and using a HELOC (Home Equity Line of Credit) to purchase your next home.

Here are a few reasons why this strategy might be the right move for you:

  1. Rental income can provide long-term financial benefits: By renting out your current home, you'll be generating rental income that can help pay down your mortgage and potentially provide a stream of passive income for years to come. Over time, your rental property could appreciate in value, providing additional financial benefits when it's time to sell.

  2. Keep your low-interest rate: If you bought your current home when interest rates were low, it's likely that you have a favorable mortgage interest rate. By holding onto your current home and using a HELOC to buy your next home, you can keep that low rate, potentially saving you thousands of dollars in interest over the life of your loan.

  3. Take advantage of tax benefits: As a rental property owner, you can take advantage of several tax benefits, including deductions for mortgage interest, property taxes, and repairs and maintenance. These deductions can help lower your taxable income and potentially save you money on your annual tax bill.

  4. Diversify your investment portfolio: Owning a rental property can be a great way to diversify your investment portfolio. Real estate investments have historically provided solid returns, and by owning a rental property, you'll have a tangible asset that can help balance out your other investments.

  5. Avoid the costs of selling and buying: Selling a home and buying a new one can be costly. You'll likely need to pay for real estate commissions, closing costs, and other fees associated with both transactions. By keeping your current home and using a HELOC to buy your next home, you can avoid these costs and potentially save yourself thousands of dollars.

  6. Your mortgage interest rate is below current inflation: If your current mortgage interest rate is below the current rate of inflation, you're effectively paying off your mortgage with "cheaper dollars" over time. This means that the real cost of your mortgage is decreasing, making it an attractive long-term investment.

  7. Rate of appreciation is outpacing historical norms: In many parts of the country, the rate of appreciation for real estate is outpacing historical norms. This means that if you hold onto your current property, it's likely to continue to appreciate in value over time, potentially providing a significant return on your investment.

Of course, there are risks to owning a rental property as well. You'll need to be prepared for the responsibilities of being a landlord, including finding and screening tenants, collecting rent, and maintaining the property. However, if you're willing to put in the work or can factor in the cost of management into your rental payment, the long-term benefits of owning a rental property can be significant.

If you're a homeowner who has outgrown their current home but has an interest rate below 5%, it might be worth considering turning your current home into a rental property and using a HELOC to buy your next home. This strategy can provide long-term financial benefits, help you keep your low interest rate, and diversify your investment portfolio, all while potentially saving you thousands of dollars in selling costs. Moreover, if your mortgage interest rate is well below current inflation and the rate of appreciation for real estate is outpacing historical norms, then selling now rather than holding the property could be a smart financial decision for long term wealth building.



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