Q: I have found a home that I want to purchase. The current owners have vacated and dropped the price considerably. Problem is that we weren't actively trying to sell our home when we found this home for sale. They are very motivated to sell. If we try to list and sell our home, this one will certainly not be available at the end of that endeavor. Not being able to qualify for two mortgages, I am looking for a way to make this happen

  1. What are factors to consider in leasing my home for one year, especially if my intent is to sell in one year? I don't want to be a long-term landlord.
  2. Are repairs and improvements that I do to my current house now, (paint, carpet, new light fixture, replacing one exterior door, minor fence repair), tax deductible? Or, do I need to advertise it for lease first?
  3. What percentage of the lease payment I will be receiving will be considered income to offset the mortgage payment on the house I will be leasing?
  4. Any suggestions on getting into the house before closing if my offer is accepted, so that I can make my house available to a tenant earlier?

James O.
North Carolina

A: When it comes to renting out your personal residence, you need to shift your mindset from it being the home of your dreams to the house now serving as a commodity. Sounds like you’re living in a buyers market and that’s going to work in your favor, as far as buying the next house is concerned.

If you’re able to make this work, I don’t understand why you wouldn’t want to hang onto the first property for a longer term of time than one year. Real estate is a great investment that has many more perks than other investments, such as stocks, bonds, securities, etc. It’s the only investment that I know of that comes with its own boatload of tax deductions, including the cost of all fix ups, fees, insurance and depreciation (the biggie).

If the house is worth $150,000, then your depreciation (which is taken off of the income) would be $6,000 alone – and that’s just the first deduction. Nevertheless, it’s your investment and here are some tips on getting it on the market.

First – make your offer on the house you want to buy. You’re dealing with a lot of “what ifs” and you can wipe out many of them with a signed contract in your hand. Your fear that the house you want to purchase may be gone if your wait is unfounded…look at the market. The house is now vacant because they couldn’t sell it and vacant houses never sell easier than a well-priced, good condition property with furniture still in it.

Make your offer contingent on the rental or sale of your current home. The owner is obviously not in the driver’s seat at this time and you are. But it means that if your offer is accepted you have to move quickly to make yours rent in a timely manner.

If you truly don’t have many single family rentals in your area, then renting it out may be a good idea. Keep in mind the mortgage company is going to consider 25 percent of the rental payments as a debt to you. So if you rent it out for $1,200 per month, it will be as if you’ve picked up a monthly payment of $300. That’s going to affect your purchasing power on the backend – so talk this over with a good loan officer.

Lenders count it against you because they conservatively want to assume that you’ll not have a renter at least three months out of the year. Of all the years I've rented property, I’ve never had even a full month vacant (of course, I always made sure I priced the rental appropriately).

Another clause you want to write in your offer is to take early possession in the property. Since it’s vacant, that shouldn’t be too tough. The seller is now making two payments and I’m sure would love to reduce it back to one.

If the offer is accepted, price your rental just below market rate to attract several rental applications. I suggest this because, again, you’re describing a buyers/renters market to me and you want to be ahead of the falling rents, not in front of them – specifically because you’re ultimate goal is to buy the move-up property, not hold out for the renter that will pay you top dollar.

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