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We're debating this question as we look into moving into a bigger home. I know many knowledgeable sources say getting into rental properties is the key to wealth. However, I was informed (by a realtor, who obviously wants us to sell) that the guidelines for keeping two houses have gotten very strict. For example, the old house also has to pass an appraisal and you have to have a certain amount of equity in it. You have to show that you already have a renter lined up, one that covers the mortgage (and it can't be a relative). Finally, you have to prove you can afford both mortgages should something happen to your renter. I guess the basic questions are:
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I would agree with the realtor unless the amount of equity in the original home is so high that you can carry the extra mortgage easily with your income. You need to be prepared for the worst possible scenarios risk wise.
I think rental property is a great way to build wealth, but it might be wiser to start saving aggressively and try to start with a paid off or nearly paid off property to start your career as a landlord. Remember, the profits in real estate is made on the purchase (getting a great buy) not at the sale. Would you buy that home for a rental property now- if not sell the home. |
