{"id":82566,"date":"2019-12-22T05:00:00","date_gmt":"2019-12-22T12:00:00","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=82566"},"modified":"2021-03-16T12:14:16","modified_gmt":"2021-03-16T18:14:16","slug":"4-reasons-home-good-rental","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/4-reasons-home-good-rental","title":{"rendered":"4 Reasons Your Home Probably Won’t Make a Good Rental"},"content":{"rendered":"

We all make mistakes. <\/span>Some are more costly than others. Each contains a lesson.<\/span><\/p>\n

In mid-2006, my wife and I purchased our first home. The property market in our area was booming. <\/span><\/p>\n

In early 2008, we needed to move to another city for career reasons. Unfortunately, during the time span that separated these two events, the global financial crisis happened. We couldn\u2019t sell our house; we didn\u2019t even get an offer. <\/span><\/p>\n

With an eye toward making lemons into lemonade, we decided to rent the house out<\/a>. What we made was more like sour medicine. <\/span><\/p>\n

For nearly a decade, we poured dollar after dollar into a money pit. Ultimately, we sold our former home for a loss nine years after we bought it. We lost money on our capital, we lost money every week we owned it, and of course, we paid real estate fees to get rid of it. <\/span><\/p>\n

The house cost us a small fortune to operate as a rental. <\/span>We\u2019ve learned a lot since then.<\/span><\/p>\n

\"\"<\/a><\/p>\n

Just thinking about buying a home for the first time brings waves of emotion. It\u2019s both an exciting and frightening concept for most people. First and foremost, know you\u2019re not alone! Over one-third of all Americans are considering buying a home in the next five years. Our First Time Home Buyer’s Guide<\/a> prepares you for the road ahead.<\/em><\/p>\n

\u201cMaybe we can rent it out.\u201d<\/span><\/h2>\n

I love to talk about real estate. That\u2019s what happens when you have a passion for something\u2014it tends to work its way into conversation. But time and again, friends, colleagues, and acquaintances tell me that they aren\u2019t interested in \u201cfixing toilets.\u201d <\/span><\/p>\n

The closest a few will come is to say that maybe they\u2019d like to turn their existing home into a rental. In fact, this is a line that I hear often: \u201cI\u2019m thinking of buying a bigger house for our family. Maybe we\u2019ll keep our current house and rent it out.\u201d<\/span><\/p>\n

Most of the time, it’s bad idea.\u00a0<\/span>I think it\u2019s great that these people are considering rental property, but most don\u2019t know how to make the numbers work. I didn\u2019t know either.<\/span><\/p>\n

For me, getting through the learning curve involved taking on board a number of lessons that I think are critical for people who want to use rental property as an investment vehicle for their future.<\/span><\/p>\n

\"owner-occupied-financing\"
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\nRelated:<\/strong> The Part-Time Investor\u2019s Guide to Truly Passive Rental Income<\/a><\/em><\/p>\n

Lesson 1: A rental is a business.<\/h2>\n

Unlike stocks, which represent shares in a business, a rental property essentially is a business. The purpose of a business is to make a profit. <\/span><\/p>\n

Think critically about this. The rental income from your property must cover all costs with something left over: profit. Costs include property taxes, insurance, ongoing maintenance, capital repairs, property management, and more. They also include the mortgage payments. <\/span><\/p>\n

In my experience, the size of the mortgage is usually what pushes the property from being a good, cash flow positive rental into a cash flow negative money pit. <\/span>Put simply, if the market rent that you can easily get for the property does not cover all of your expenses, then the property is not a good rental.<\/span><\/p>\n

The main issue is this: If you originally purchased the house to live in yourself, then you probably paid too much for it. You purchased it based on emotion\u2014the desire to find a place for you and your family to live comfortably. <\/span><\/p>\n

This was not a business decision. A large percentage of the time, when you look into market rents for your home, you\u2019ll find that the rent you can expect to get cannot cover all of the expenses.<\/span><\/p>\n

There are a number of reasons for this:<\/span><\/p>\n