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Buying a Home to Later Turn Into a Rental

Home buying is a big decision. Buying a home that one is not going to occupy but hold as an investment can be incredibly stressful. For the reason of stress alone, a route taken by some investors is to purchase a home that's future purpose will be enhancing their portfolio rather than remaining a dwelling.

The mentalities of investment and dwelling buyers differ substantially. A rental property should not have the comforts and luxuries of a home bought for the specific tastes of the buyer. And when buying an investment property it should not be ready to rent upon purchase, otherwise too much money could be spent up front. However, homes in need of serious repairs, such as the roof or outdated electric work, can result in spending too much money later.

Look for a Home That Needs to be Updated

While searching the market for a home to rent after occupying do not be put off by properties that need updating. It is these homes that should attract investors the most. A home with medicine cabinets that haven't been replaced since the 1970's and cheap bumper scuff repair Bradford linoleum in the kitchen that is discolored from bleach could be indicators that good money can be made.

Liz Pulliam Weston wrote in her MSN Money article "How to Find a Good Investment Property" that the money is made at the point of purchase, not the point of sale. What she is driving at is that if too much money is spent up front then the rent may not cover the monthly payments.

Living in a home before renting it might be the best option for first-time landlords. Rather than purchasing a property that needs updates and a tenant immediately, occupying the home for oneself can offer time and flexibility in making the updates/improvements.

Think Utilitarian- a Home With Everything That's Necessary

It is tempting to buy a home with certain comforts when one is going to occupy it. A home with an office is extremely desirable, even to a person who does not operate his or her work from home. A handyman would enjoy a workshop added to the garage or separate from the house.

The important thing to think about in these regards is that the property is not for the comfort of the owners' current lifestyle so much as it is for their later lifestyle. For this reason an investor must consider keeping everything as simple as possible.

The home should be modest with small bedrooms large enough to serve their purpose of sleeping in with adequate closet space. Bathrooms should be large enough for a person who is overweight to be comfortable in, but do not need anything more than a standard bath and shower. Dining rooms are not necessary so long as the kitchen can suit a six-person table.

What to Improve in a Rental Property

Following this plan of buying to live, then renting allows for flexibility and a greater understanding of the home. What to improve is not necessarily as important as when to improve.

The first things to consider fixing or replacing are details that are very visible and inexpensive. Basic light switch covers tend to fade to unattractive shades of their original color after too many years of exposure. A pack of 10 can be purchased at Lowe's or Home Depot for under $3.00. At this price it is worth it to replace all the light switch and outlet covers for the sake of uniformity.

Beyond the inexpensive replacements a strict, reasonable budget must be kept. After all, improvements require money and time. It is for this reason that many improvements should be done solely for the purpose of the renter.

While living in the home a smart strategy is to not fix what is not broken, especially items that are used frequently such as carpet. If the carpet is in need of replacing, the best idea might be to let it stay until after the home has served its purpose as a dwelling and is ready to be rented.

This will save the expense of shampooing, and a potential renter will be able to appreciate moving into a home that has brand new carpeting. The same goes for the kitchen; replace it for the sake of the renter. After all, the entire point of the purchase is to add to the quality of the investor's life later when the sale or continued rent puts his or her child through college or funds multiple trips overseas, not in the present while cooking dinner.

Another important investment should be made to the exterior. The house should be power washed if it has vinyl or aluminum siding as should the driveway if it is cement. A professional lawn care person should cut, edge, weed eat, and fertilize the grounds. The extra expense could be the very thing that gives tenants the desire to live in the home prior to even finding that it has been re-carpeted, and that the kitchen floor has been replaced.

One Last Thought on Living in the Home Before Renting

Aside from the flexibility it affords, another great reason to live in the home before renting it out deals with profit potential. Many home owners spend just a bit too much for a home in terms of reaping rental profits, and unless the buyer is very experienced, or lucky, the odds are fair that the home they purchase to rent is going to lose money the first year even with a tenant.

While that money is being lost over the course of a year, the investor will be living in a home that has, perhaps, the comforts he or she enjoys such as a two car garage. The overhead involved with the loss every month could make investment property ownership a painful endeavor.

And it is for this reason- money-related stress- that buying a home to live in, then rent may be the best option for investors.

Don't be the product, buy the product!