November 21, 2023

Jeremy McHone addresses a common dilemma faced by many of his clients: the desire to upgrade to a larger home. This need often arises from various lifestyle changes, such as growing families requiring additional bedrooms or a desire for a larger yard. However, the current market conditions, characterized by a significant run-up in both property prices and interest rates, complicate this decision.

Financial Implications of Moving in a High-Rate Market

Homeowners contemplating an upgrade are faced with the stark reality of the current real estate market. Even with a considerable down payment from the sale of their existing home, the soaring interest rates mean a potential doubling of their mortgage payments or a substantial increase of thousands of dollars per month. Such financial implications are causing many homeowners to reconsider the feasibility of moving.

A Strategic Solution: Renting Out the Current Property

Drawing from his personal experience, McHone suggests a creative solution: renting out the current property instead of selling it. This strategy involves using the rental income from the existing home to offset the increased mortgage costs of the new property. McHone's own success story serves as a practical example of how this approach can effectively manage the financial burden of upgrading in a high-rate market.

Qualifying for a New Loan: Leveraging Rental Income

An added advantage of renting out the existing property is its impact on qualifying for a new mortgage. McHone explains that if the mortgage payment of the current home is 75% or less than the rental income it generates, this payment can be excluded from the debt-to-income ratio calculations for the new home. This approach makes it easier for homeowners to qualify for a mortgage on their new property without the burden of the existing mortgage impacting their credit.

Long-Term Wealth Building through Property Investment

Beyond the immediate financial relief, McHone highlights the long-term benefits of this strategy. By becoming landlords and acquiring multiple properties over time, homeowners can create a portfolio of assets that not only appreciate but also generate passive income. This approach positions homeowners for future financial stability, thanks to the rental income and mortgage payments covered by tenants.

Embracing a Mindset Shift in Real Estate Investment

McHone encourages homeowners to view their current low-rate mortgages as assets. By retaining these properties and leveraging the lower payments to generate rental income, homeowners can more effectively manage the higher rates associated with purchasing a new property. This mindset shift is pivotal in navigating the current market and building long-term wealth.

Open Invitation for Guidance and Strategy Discussion

Recognizing that not everyone is comfortable with the idea of being a landlord, McHone extends an invitation for further discussion and strategy planning. He acknowledges the varied circumstances of different homeowners and offers to provide personalized advice and support for those considering this approach.