Recently, a financial expert posed a question online about a couple who sought his advice. They were considering renting out their condo and moving to a rental of their own as a way to help expedite the payments against their mortgage (the rent they would be paying was apparently less than their current monthly mortgage payment). The discussion board was abuzz in a matter of seconds. What the couple was overlooking was the fact that their mortgage payment includes both interest and principal. While the principal portion is a cash expenditure, it is not an expense per se, so they really aren’t comparing apples with apples. In addition, insurance is typically higher on secondary properties – especially ones you plan on renting out. Their lender might have something to say about this arrangement as well, since secondary properties often require a lower debt to equity ratio. Another consideration is any added expense they might incur once the Tenants move out. I am generalizing here, but most rentals I have seen are subject to more wear and tear than a property that has been owner occupied. And they definitely shouldn’t ignore some of the issues attached to screening, securing and managing a tenant – also known as Landlord/Tenant relations. This can not only be time consuming, but costly if the property remains vacant for a month or so while you are in between Tenants because the last one didn’t quite work out. These were my comments, but there were some from other readers – many of whom were not nearly as diplomatic toward the couple who were trying to forge a clever path toward early retirement. I tip my hat to them for seeking guidance first. Which is really the moral of this story: Property Owners have plenty of options, but it’s important to have a well thought out plan – incorporating feedback from outside experts - before any decisions are made.

This is an excerpt from my February 2012 E-Newsletter. To read the full issue, click here: It's Your Property, But Have A Plan