June 29, 2022

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Buying a Second Home to Rent: Dos and Don’ts

2 min read

While there are financial benefits to investing in rental property, there are risks—tenants who don’t pay their rent and the headache of being a landlord—as well. You’ll need to weigh taxes, real estate appreciation, mortgage, and maintenance costs, and your desire to be a landlord when deciding if owning a rental is a wise financial move. 

Key Takeaways

  • There are several key advantages to buying a second home for a rental property, notably tax advantages, such as deductions for interest, insurance, and other expenses.
  • On the downside, you’ll have to be a landlord—which includes time and energy.
  • One of the best things prospective landlords can do is their real estate homework and run the numbers

Do Think About the Tax Advantages

You can deduct interest, taxes, insurance, and other expenses against the property’s income and usually deduct losses against your other income. You can also deduct depreciation from your taxes.

The deduction is basically an allowance for wear and tear over 27.5 years, as of 2021. You can sell a rental property and roll the proceeds into other rental property without paying capital gains taxes.

Don’t Forget You’ll Be a Landlord

Your rental property is a business that requires time and energy. You’ll need to keep up-to-date on rental laws and are legally required to maintain a safe and habitable property for your tenants.

Remember that a tenant paying top dollar has a right to expect a near-instant response to any problem, large or small. Renters who know they are paying a little under market will tend to be a little less demanding. It helps if you can do minor repairs yourself. You also have to collect rents and deal with delinquent tenants.

If the prospect of managing your own rentals is daunting, ask your real estate broker for a referral to a property manager or caretaker or do an online search. Just be aware that hiring a property manager will eat into your returns. 


2022-04-03 02:47:33

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