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Converting Your Primary Residence to your First Rental

Turning your primary residence into a rental property is a big decision that can have lasting financial impacts. While it may seem like a natural step toward building wealth, the reality is that not every home makes a good rental.

If your property isn’t generating positive cash flow, it’s not truly an investment—it’s an expense. And if you’re banking on appreciation to make it worthwhile, you’re gambling. Real estate markets shift, and if you need to sell at the wrong time, you could be stuck with a financial burden rather than an asset.

If you’re considering this move, here’s a step-by-step guide to ensure you’re setting yourself up for success.

1. Run the Numbers — Is It a True Investment?

Before making the transition, you need to evaluate if your home will generate positive cash flow. Here’s how:

Calculate Your Total Expenses

  • Mortgage payment (including principal, interest, taxes, and insurance)
  • Check with your taxing authority on whether your taxes will increase
  • HOA fees (if applicable)
  • Property management fees (if hiring a manager, usually 8-12% of rent)
  • Maintenance and repair costs (budget 10% of rental income)
  • Vacancy rate (assume 5-10% of annual rent)

Determine Market Rent

  • Research comparable rentals in your area.
  • Talk to property managers about estimated rental rates and vacancy expectations.

Calculate Cash Flow

  • Take your expected rental income and subtract all expenses.
  • If the result is positive, your property is generating income.
  • If it’s negative, you’re paying out of pocket to keep the property—making it a liability, not an investment.

    2. Consider Alternative Options

    If your property is cash flow negative, think about:

    • Selling and reinvesting: Take the equity and purchase a property that cash flows.
    • Short-term rental strategy: If regulations allow, you may generate higher income through Airbnb or VRBO.
    • House hacking: Rent out part of the home and stay put (e.g., a basement unit) to offset costs while saving up to purchase another investment.

    3. Convert the Home for Renters

    If the numbers work and you decide to proceed, prepare your home for tenants.

    Make Necessary Repairs & Updates

    • Fix any major issues (roof, HVAC, plumbing, electrical).
    • Update flooring and paint to durable, neutral colors.
    • Ensure safety features (smoke detectors, carbon monoxide detectors, secure locks) are installed.

    Decide on Property Management

    • DIY: If you’re local, experienced and don’t mind maintenance emergencies, negotiation and constant reinforcement; you can self-manage.
    • Hire a Property Manager: If you want a hands-off investment, a manager will handle tenant screening, maintenance, and rent collection as well as all of the other tedious tasks.

    Tip: Evaluate the Pros and Cons of Self-Managing Your Rental Property

    • Form an LLC if needed to separate personal and rental property finances.
    • Get landlord insurance (different from homeowner’s insurance).
    • Require tenant screening if not using a professional management company (credit check, background check, rental history, employment verification).
    • Draft a solid lease agreement with clear terms that follow the law for our area.

      4. Plan for the Long Term

      • Create a maintenance and repair budget.
      • Have an exit strategy. If cash flow becomes negative or market conditions change, have a plan.
      • Re-evaluate annually. Ensure the property continues to perform as an investment, having a trusted real estate advisor or your property manager run reports for you to see how your money is working (or not).
      • Long Term Vision. If you are not in the rental long game, make sure to sell when you can avoid capital gains. There are a few ways to accomplish this, find a reputable real estate agent and accountant to work with.

      Final Thoughts

      Not every primary residence makes a good rental. If it doesn’t cash flow, consider selling and reinvesting elsewhere. However, if the numbers work, turning your home into a rental can be a smart way to start your real estate investment journey. The key is making an informed decision, not an emotional one.

      If you’re unsure, let’s run the numbers together and ensure you’re building true wealth, not just holding onto a property for sentimental reasons.