It happens, it even happened to me. You set a budget and timeline, and both get blown out of the water and you are stuck with a home and no money in your pocket. What are a few of your options? Let’s dig in.
- Turn it into your personal residence. If you are an investor and was looking to flip the home or keep it as a buy and hold but the numbers don’t work, then convert it into your primary residence. This can allow you to refinance (if it makes sense) into an owner-occupied interest rate loan. Then over time you can move on. Now the best part is then your previous home could become your rental. It becomes a win-win. You get a rental, and you move into a beautiful home. If you were looking to flip it, then you can live in it for two years, and then the profits made are tax free up to $250,000 if you are single and $500,000 if married and file jointly.
- Sell it. In some markets renting it out doesn’t give you the same return on investment for those high-end finishes. However, the buying market might pay that premium. Plus, keeping as a rental could be an issue because the cost of these finishes may eat into your reserves in the long run. Fixing high end appliances by way of example could be thousands over the long run. Let the next owner deal with it.
- House Hack the home. This option allows you to keep the home but collecting some revenue from the other rooms or units. I know that this may not sound ideal, but it doesn’t have to be forever. My wife and I lived in our 360 square foot Accessory Dwelling Unit for two years while renting out the main house. It allowed us to catch up on our bills, pay off debts, and now we live comfortably in the main house. We also completed two refinances, dropping our mortgage payments by over $1,200/month!
Of course, every situation is different, but it is good to lay out plans for each scenario to see what works for you. The important thing to remember is that real estate is very forgiving. Give it time, and it will generally do well for you.
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