According to the American Association of Realtors, the average American purchases 7 houses during their lifetime. In my opinion, those are 7 houses that we should hold onto for the rest of our lives, to generate monthly income and long-term economic security for our families.
The usual procedure that we follow is to sell the home that we live in and to use the cash from the sale to buy a new house. What I suggest is to use a new procedure. If we tweak the old procedure just a little, it can result in a huge difference in our net worth and our economic security.
I propose that instead of selling your home, just refinance it, and use the money from the refinance as a down payment on your next house. Now, you own two houses and you can just turn your old home into a rental house. It’s almost as easy as 1 2 3.
The 3 steps to turn your home into a rental house
1.) Refinance your residence.
2.) Use the refinance money as a down payment to buy a new house.
3.) Move into the new house and rent out the old house.
The two immediate advantages of turning your home into a rental house
1. You have a new source of income flowing in, in the form of rental checks. This income provides a new layer of security because it does not depend on you working regular hours, and it continues to flow even if you lose your normal job.
2. Formerly, you had only one house that was increasing in value an average of 5% each year. For example, a $200,000 house would increase in value to $300,000 over 10 years, for a profit of $100,000. When you own two houses your profit would increase to $200,000 in ten years.
Like having an additional pension without retiring – only better!
Owning rental houses far exceeds the benefit of the pension that you may receive from your job. I worked for the state of Arizona for 13 years, and I will one day receive a pension of around $1,000 a month. But guess what? Each year the value of my pension will go down because it is not tied to inflation. So, after 10 years I’ll still receive $1,000 a month but because of inflation, it may be actually only worth $100 dollars a month because the cost of my groceries, my clothes, health care, and other costs have all gone up each year.
Rental houses provide a better pension. If I get $1,000 a month in rent profits, it not only keeps up with inflation, but it exceeds inflation. Which pension program would your rather have? One that increases in value with the passing years, or one that decreases in value?
Why didn’t I turn my home into a rental house a long time ago?
Even if you buy just one rental property throughout the course of your entire life, your economic picture will almost immediately get better. You will wonder, as I did, “why didn’t I do this a long time ago?”
Terry Sprouse is author of the award-winning book “Fix ‘em Up, Rent ‘em Out,” and the new e-book “Never Sell Your Home! How to Turn Your Home into a Rental House.”
Sign up for a FREE Investing course at Terry’s blog.