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I am currently living in a rented house. I am thinking of buying a home with the intention of renting out a section (for example, a two story house, live on the first floor and rent out the second floor, or a duplex). My first question is, is this a good idea? Have you done this and how was the experience? Does this make financial sense?

Next, there's a possibility that I move to an entirely different state in about 5 years, in that case, I can rent out the section that I am living in too. If I can't personally attend to the rental property, does it make sense to hire a realtor or a company to manage the property? How are the costs?

If I end up renting out a section of my home, is it always going to be financially sensible, or are there down sides to it?

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    Welcome to Personal Finance & Money, c00der. As written, this question is much too broad; I count some 7-8 different questions. Also, many of the questions would be opinion-based; there's no obvious way to tell a "better" answer from a "worse" answer, or a "correct" answer from a "wrong" answer. Please take the quick site Tour to learn how our format works, and review the Help center section on asking questions. Once you know what's expected of questions on Stack Exchange and Personal Finance & Money, you can Edit this to be in line with our requirements and guidelines. – user Sep 16 '19 at 9:51
  • Clearly nothing is going to always be financially sensible. Your tenant could turn out to be a pyromaniac and burn your house down. Then it won't have been a profitable venture. You need to be clearer about what you're asking. – Money Ann Sep 18 '19 at 6:27
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While a bit broad I think the meat of your question is answerable.

Whether renting part of a house or an entire house is lucrative depends primarily on the local market and the quality of tenants available to you. To increase chances of success you want to not be utterly dependent on the rental income, which means healthy cash reserves to pay for various repairs or covering periods of vacancy. If you can comfortably afford the house without renting a portion of it, then you can view any rental income as just getting you ahead. That is a better situation than over-extending with the idea that you'll have consistent rental income.

Being a landlord at a distance is typically more costly, you'd typically need a property management company to deal with it, which is commonly 7-10% of your rental income. So it is even more important to not be overly dependent on the rental income and to be confident in the long-term growth/profitability of the area.

Debt to income ratio is a key factor for mortgage approval, so if you plan to move in 5 years and want to buy another house in a different state you'll need sufficient income to satisfy the debt to income requirements of lenders. They will only count a portion of your rental income. If you were only renting out a portion of the house before moving, the rental income would be much lower than after you started renting out the entire house. It will take significant income to qualify for a mortgage on a new property right away after moving, so if that's your goal I would buy something well below the max you qualify for.

If you feel confident that your area is a good rental market and that prices will continue to move upward then it could be very lucrative, but there are no guarantees and some unfortunate tenants or costly home repairs can sink some people if they aren't financially prepared. Personally, I maintain an emergency fund that provides 8 months of expenses that is based on all my expenses (all rentals and my primary residence) and zero income (every tenant stops paying rent, no job income, etc).

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My first question is, is this a good idea?

Besides Hart's excellent answer, you have to determine whether or not you have the mentality/personality for being a landlord.

buying a home with the intention of renting out a section (for example, a two story house, live on the first floor and rent out the second floor,

  1. Seal off the second floor from the ground floor, and build an exterior staircase, or...
  2. have your tenants tromp through "your space", and -- no matter which:
  3. hear them doing whatever they do, day and night, and
  4. deal with all the mortgage and government rules and regulations (including a possible zoning variance) needed to convert a single-family home into a multi-family for-let house.
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