Four Ways to Become a Landlord Without Breaking the Bank
Home prices are high, and there is no doubt about that. Average prices have reached $375,000 in most states. Of course, people can still get somewhere lower than that price point, but they’d be lucky to get anything below $300,000 this year. Many people are looking for alternatives to buying a home outright.
Currently, people are considering renting instead. Because of this, rental prices have surged, making it a profitable venture to be a landlord. But what if you don’t have the money to buy a property outright? Here are five ways to become a landlord without breaking the bank.
Use Your Mortgage
Mortgages might be the most obvious choice, but it’s always worth mentioning. You can buy a property using your mortgage and then rent it out. The rental income will pay off the mortgage, and you’ll effectively live for free. There are different kinds of mortgages, but one you should keep an eye out for is adjustable-rate mortgages. These mortgages can ensure you can get the best out of your loan. You can adjust the loan to fit your current needs without losing too much.
Another kind of mortgage to look out for is an interest-only mortgage. With this type of mortgage, you’re only required to pay the interest on the loan for a certain period. This can be beneficial because it frees up cash flow to help with other expenses.
However, ensure your mortgage lender is okay with renting out the property. They might restrict how long you can rent for or what type of tenant you can have.
A government-based loan such as an FHA loan is a smart way to start your rental business. First, however, you should know a few things regarding this funding option.
First of all, FHA loans are only made for owner-occupied residences. Therefore, you cannot use this type of loan to purchase a property strictly for investment purposes. So, how can you use it as an investment opportunity?
The answer is that FHA loans can be used to purchase a multi-unit property, with the maximum being four units. Technically, you can get a multi-unit property, and as long as you live in one of the units, it would be considered an owner-occupied residence. You can then use the other units for rent. However, there is a caveat to this strategy that it can be expensive.
Your next option is to take advantage of the one-year occupancy rule. With this rule, you can live in the property for one year and then turn it into a rental property. This is an option because FHA requires borrowers to certify that they intend to live in the property for at least one year. You can do this by providing evidence of employment, relocation plans within the next 12 months, or proof that your home is too small for your growing family.
An FHA loan is advantageous because it has low-interest rates, and you can put down a small deposit. The minimum deposit is 3.5%, and you can finance the rest of the purchase price.
If you already own a property, one way to become a landlord is to use a HELOC or home equity line of credit. With this method, you can access the equity in your home and use it as a down payment for another property. The good thing about this is that you can get this line of credit with a lower interest rate than other loans, such as a personal loans.
The downside is that you’re putting your home at risk. If you default on the loan, you could lose your home. So, make sure you can afford the repayments before taking this step.
Purchase a Fixer-upper
Another option is to find a fixer-upper. This property will need some work, but it will be cheaper than buying a property already in good condition. You can then live in the property while you renovate it and turn it into a rental property when you’re done.
This option can be a great way to get into the rental market because you’ll have more control over your finances. You can add value to the property by doing the renovations yourself. Ensure you know what you’re doing and don’t overspend on the upgrades. If you partner this option with the financing options above, you can drastically reduce the money you have to pay on the loan. The less you spend on the loan, the more profit you can get.
Here are some creative ways to become a landlord without breaking the bank. You can purchase your first rental property without draining your savings account through these options. You can also drastically increase the revenue you can get by doing these options.