Turning Your House Into A Rental

by | Jun 11, 2021 | Real Estate, Real Estate Investing | 0 comments

Converting your own home into a rental is an awesome way to begin investing in real estate. You can leverage low down payments, understand all of the maintenance risks of the property, and have familiarity with the area.

There are many advantages when you make the leap and turn your home into your first rental. Some of this pros include mortgage pay down, appreciation, tax benefits, cash flow, and much more.

It can be intimidating to get into the rental game. That’s why using this technique will help get you over that rookie real estate investor hump.

Turning your house into a rental allows you to started as a real estate investor with less doubt and more confidence!

Topics Covered

  1. Why You Should Consider Turning Your House Into A Rental
  2. What Is The Live-In-Then-Rent Strategy
  3. Top Questions From New Real Estate Investors
  4. 12 Must-Know Tips For Turning Your House Into A Rental
  5. Advantages Of Turning You Home Into A Rental
  6. Disadvantages Of Turning You Home Into A Rental
  7. Other Options To Get Started With Your First Rental

Why Consider Turning Your House Into A Rental

In my personal quest to find passive income, owning rental properties kept showing as the best option. I’m still a pretty big believer that true passive income is difficult to find unless you already have money, but that’s a subject for another post!

Using your own home to get into the rental game can be much easier and costs far less than going the traditional route.

Also Known As The Live In Then Rent Or Nomadic Strategy

Many real estate investors have used this exact strategy to begin building their rental portfolios. It’s also known as the live-in then rent or nomadic real estate investing strategy.

This is a repeatable process that is used to build up a small number of rentals. Typically, investors using this strategy purchase a new primary home every 1 – 3 years and then turn their previous home into a rental property.

At a certain point, you probably won’t want to move anymore. By then, you should have some good cash flow coming in to help fund other investments. You will also have built-in equity!

Top Questions From New Real Estate Investors

1. Do you have to live in a house before renting it out?

In general, yes. When obtaining a mortgage on a property, there are certain rules that you need to follow. In most cases, you will need to live in the home for a year before you can turn it into a rental.

If you want to sell the home within 5 years, you should consider living in it for 2 years. You can benefit from tax savings when selling a home that you lived in for 2 of the last 5 years.

2. Is renting cheaper than buying a house?

This one is really market-specific. In certain area’s renting might be much cheaper than purchasing a home. You also need to factor in maintenance costs associated with homeownership. It’s easy to forget to account for those costs when you haven’t owned a home.

There are many upsides to owning home that you lose out on when renting.

3. How do you buy a second home for a rental property?

That’s what this article is all about! The first step is getting in touch with a lender to get pre-qualified. Then, if you don’t qualify, the lender should give you some advice on what you need to do to better your financial standing.

4. Can you buy a house while renting an apartment?

Yes, you can! This downside is that you might have to put 20% or more down if it’s not your primary residence. However, you can put as little as 3.5% down when you are living in the home.

There are also financing options that allow you to put 0% down! You can learn more about those options in our guide for first-time homebuyers.

5. Is renting out houses a good investment?

Renting houses is a great investment! We think it’s the fastest route to achieve financial freedom and leave your job behind.

With that said, there are risks associated when purchasing real estate. Therefore, you should always have criteria set that your investment needs to meet.

Learning how to run the numbers on an investment property is important to being a successful real estate investor.

6. How much income can you get from a rental property?

This is also very market specific. You might be able to cashflow $100 a month or $1000 a month.

Do some research on rentals in your area to find what properties are currently renting for. Next, add up the costs of owning a rental (mortgage, repairs, vacancy, property taxes, insurance). Then, subtract that from the rent to get a rough idea of how much cash flow you can expect every month.

When starting out, it’s important to create a cash flow number that you want for every property. Personally, I want to cash flow at least $200 a month per property.

With that rule, you would generate $2400 a year in extra income per property if you are cash flowing $200 a month.

The true power in real estate is equity. This occurs over time as your mortgages get paid down, and your rents increase.

7. Can an HOA prevent you from renting your home? (Home Owners Association)

Yes, they can. If it’s part of the rules in an HOA, you might not be able to rent your home. In most cases, HOA’s will allow you to rent to a full-time tenant but won’t allow short-term renting.

You should always fully understand the rules of an HOA before investing in a property within that community.

8. Is it worth becoming a landlord?

Yes, it is! I highly recommend self-managing your rentals when you have a small portfolio. You benefit directly by saving money on property management and learning what’s expected of a good property manager.

You do need to be aware of the rental laws and regulations in your city and state if you manage the property.

In the first 1.5 years of owning a rental, I only had to dedicate around 20 hours of my own time to self-manage. That’s a small sacrifice in time for a huge upside in equity.

13 Must-Know Tips For Turning Your House Into A Rental

You need to know and do some things before you turn your house into a rental. This guide will help ensure a smooth process from start to finish when you are ready to take the plunge with your first rental property.

1. Get Your Spouse And Family On Board

This won’t apply if you’re single! But if you do have a family, you must get them all on board before you jump in.

The live-in then rent strategy can be a bit disruptive due to having to move every few years. Be transparent with your spouse and family to feel out how receptive they are to move.

If the live-in then rent strategy doesn’t work for you, there are many other real estate investing strategies that you can pursue.

2. Know Rents In Your Market

Spend some time looking at rental listings in your area for homes similar to yours. Please make sure they are within a mile or 2 and have the same amount of rooms, bathrooms and that the square footage is also similar.

By doing this, you should get a pretty good feel for what you will be able to charge in rent.

Also, keep an eye on how long listings are sitting. If they are on the market for long periods, they might be charging too much for rent.

3. Know The Housing Laws

Now let’s be real here, your probably not a lawyer, and neither am I. But it would help if you were reading up on the laws within your city and state. You should also seek out a real estate attorney to help get you started.

It’s crucial to understand the landlord and tenant related laws if you will be self-managing.

4. Running The Numbers

Learning how to run the numbers on a rental property will help you understand if it makes financial sense to turn your house into a rental.

Spend a bit of time to understand all of the costs associated with your rental. Here are a few things to consider putting into your criteria. You should already have a pretty good idea of what these numbers are if you’ve already lived in the home.

  • Mortgage payment
  • Insurance costs
  • Property taxes
  • Vacancy costs – (we use 5% of the rent, but yours might be more)
  • Maintenance costs – (5% to 10% of the rent)

When running the numbers, you will take all of the costs and add them together. Then you subtract the total cost from the estimated rent to find out your cash flow.

Check out the rental calculators at Bigger Pockets to help you more accurately run the numbers.

5. Reach Out To A Lender And Get Pre-Qualified

Honestly, this is so important that it could be the first thing that you do. Without getting pre-qualified, you won’t know if you are in a position to get another mortgage.

Getting that pre-qualification will help give you a budget for you new home.

If you don’t get approved, ask the lender what you need to do to get approved in the future.

6. Repair Know Issues

If you don’t fix them now, they will come back to bite you in the ass later. Getting the property in tip-top shape will also be an advantage when you begin looking for a tenant.

7. Get Insurance Quotes

Reach out to at least 3 insurance agents to get proper coverage for your rental. Of course, you won’t want to keep the same policy since you won’t be living there any longer.

Your current insurance company might be able to cover your rental and bundle it with your other policies.

Consider getting an umbrella policy to add more protection to your rental in case disaster were to strike.

8. Get A Real Estate Agent

Try to find an agent that works with real estate investors or is also an investor. These seasoned agents will bring you great deals and help you spot potential problem properties.

Once you’ve found an agent, you can send them over the criteria for your new home and have them set up an automated search. That way, new listings will come straight to your inbox.

These searches from the MLS are much better than free house hunting apps. In addition, the MLS provides more accurate and up-to-date information.

9. Keep Some Money Set Aside For Repairs

It’s easy to use all of your savings to go towards the down payment and closing costs on your new home.

Try keeping at least $2000 in savings. $5000 is even better!

This might not be realistic for everyone’s situation. Just make sure to start building up reserves to help cover those sudden maintenance issues.

10. Decide Who Will Manage Your Rental

Consider self-managing your rental to save money and gain experience. You can always hire a property manager down the road if needed.

Avoid problem tenants by creating a thorough tenant screening process.

11. Don’t Listen To The Negative Noise

Everyone and their dog will tell you horror stories about being a landlord and owning rental properties. The ironic thing is, most of these people have never owned a rental property!

Trust your numbers and avoid the negative noise coming from others!

Advantages To Turning Your House Into A Rental

Less Money For A Down Payment

When you purchase a home to live in, you have different financing options that investors don’t have access to. You can put as little as 3.5% down with an FHA loan. 5% down with a conventional loan is also a great option.

VA and USDA loans allow you to purchase a home with no money down! Talk to your lender to see what lending options you qualify for.

By putting less money down, you can save more money for reserves and to go towards your next down payment.

Knowing The Condition Of Your Home

This is a huge advantage when getting started with a rental. If you know everything about the home, you can more accurately estimate the repairs and maintenance costs.

One of the biggest fears of new investors is getting hit with a large repair bill soon after purchasing a property. Fortunately, this is not the case when you’ve already been living in the home.

Someone Else Paying Your Mortgage

This is just a perk of being a real estate investor. But it feels amazing when you get that first rent payment the covers the mortgage.

Disadvantages To Turning Your House Into A Rental

The pros’s far outweigh the cons when it comes to renting your home.

Moving Every Few Years

Moving really sucks! This is the biggest downside to the live-in then rent strategy.

There’s no way around it, and it’s never fun when you have to pack up everything you own and get it to a new home.

Scaling Rental Portfolio Slowly

It takes much longer to build up a rental portfolio due to having to live in each property for at least a year. For some, this isn’t a big issue as moving every year is a pain.

On the upside, after you’ve moved 2 or 3 times, you usually have built up a sizeable amount of equity. Equity is where the true power in real estate lies.

Other Options

There are so many different types of real estate investing. At Self and Wealth, we love using the live-in then rent and house hacking strategies to get started.

Everyone’s situation is different, though. Therefore, we want to give you as many options as possible if you consider getting started with real estate investing.

The House Hack

House hacking is the single most powerful tool to a budding real estate investor.

House hacking involves renting out spare rooms or extra space to earn more income. You can rent to full-term tenants or possibly turn it into a vacation rental.

Personally, I think house hacking is more powerful than other strategies due to owning your own home and massively reducing your cost of living.

You can combo the nomadic and house hack strategies to start earning more income.

Traditional Real Estate Investing

With traditional real estate investing, you will be purchasing properties strictly as rentals. In most cases, you have to put at least 20% down to go the traditional route.

This means that you miss out on all of the financing advantages of purchasing a primary residence.

Traditional investing is great for more seasoned investors with money set back specifically for building up a portfolio.

Crowd Funding

With crowdfunding, you are able to pool your money together with other investors to go towards purchasing real estate.


A REIT or real estate investment trust is a company that owns a portfolio of real estate. You can purchase shares of a REIT on the stock markets.

Final Thoughts On Turning Your House Into A Rental

Choosing to turn your home into a rental is an awesome way to get started in real estate investing. You get the benefits of lower down payments and the advantage of knowing the condition of the home.

We thank you for taking the time to read this article and hope the information provided helps you turn your home into your first rental.