During the process of hunting for our first house, I got to thinking about the difficult position many Americans are in with the declining value of their homes.  In ways, it seems to be a great time to purchase a home if you have the ability to qualify for a loan. Then it hits me, yes we may get a good deal, but at the expense of someone else.  Not really a good feeling, to be honest.

Maybe there is another way for families that are selling their homes at low values to capitalize on their investment.  How about trying to rent out your home?

Leasing isn’t for everyone and it may be difficult to do it in this market, but let’s take a look at turning what may seem to be total loss and turn it into an absolute gain.  It’s worth the time to at least entertain the idea.

First, it is important to determine the value of what you can rent your house for based on either other properties or local apartments available in your area.  In order for this to work, you will need to have your monthly rent be able to cover your mortgage payment, including insurance, taxes and other fees. Even if you can’t cover everything, you still are building up equity in your property.

By keeping the home, you may be able to ride out the turbulent market until home prices begin to rise again.  Nothing is ever certain in this market, but if you maintain your property and it is in a desirable area, the value of your home will eventually increase. You never know, you could even get a great offer from the renter without any hassle of having it on the market!

Next, for tax purposes. By having a rental property, you can deduct the cost of your repairs. This not only helps your overall tax bill, but it allows you to keep your house in tip top shape for when you are ready to sell. So why not lower your overall taxable income while possibly making a profit with additional monthly income?

You want diversification, so here is your chance. A home is never really an asset unless it is making money FOR you. Now you can seize the opportunity to add additional wealth with rental income along with your mutual fund holdings in your retirement accounts. Although in this market, your entire portfolio, including the value of your house, has been tanking. I guess I’m a glass is half full kind of guy.

I’ve always envisioned at some point to own real estate as a source of revenue for our future.  Even though it sounds like a lot of work, there are options available like outsourcing your landlord role if you are willing to sacrifice a little of your bottom line. How much is worth to you to reduce the stress of managing a tenant?

Every person interested in doing something like this would really need to weigh the risk according to their own financial situation. It probably wouldn’t be a good idea to balance two mortgages with so many companies closing and people losing their jobs. However, I’m sure there are opportunities out there!

My brother and his wife own a duplex in which they rent the lower unit. Last I checked, the rent was enough to cover their mortgage while staying competitive in their area. The only hassles have been that the unit has been vacant for extended periods of time.  Again, lots of risks to consider.

Do you know anyone that has adopted this idea in lieu of selling their home? Has the market made it too difficult to make this a viable solution?

Stupidly Yours,

Matt