Buying a new house and rent out the current one?

I'm currently owning a townhouse, and want to move up to a single family. The buying market is good now, so I'm thinking of buying maybe within a year or two. But i don't want to sell the townhouse, it would be a negative investment, and if hope for the best, I can sell it the same price that I bought in the current market, but I don't want to. There will be a big development near my neighborhood so the worth may go up after 5 years. How does the mortgage work if I have two houses? I plan to rent out the current one with (hopefully) equal to the current monthly mortgage.

If these properties are far enough apart, you can treat them as your first and second homes. Then the entire mortgage interest could be deductible, subject to limitations and requirements.

If one becomes investment property (i.e. rental property) and the other one is your primary resident, your mortgage interest remain deductible however interest on your rental property is only deductible if there is actual rental income.

Mortgage interest might be slightly higher for investment property comparing to first or second home. If all possible, you should borrow as much from your primary resident rather than the rental property.

Keep in mind if your equity is below 20% on any given property, you will have to pay PMI (mortgage insurance).

To figure whether you can collect enough rent to cover your carrying cost for a rental property, besides mortgage you will also need to consider:
- Property tax
- Insurance
- Any furniture or appliances you might have to purchase
- Maintenance cost
- Transaction/closing costs
- Sales tax (some state require you to submit sales tax for short term rental)
- Administration cost (keeping track of expenses, more complicated tax returns to file etc)

This is a fairly complicated issue to discuss on this board. If you have more questions, feel free to write me directly.

Best wishes.

Renting out the current one can be a great investment, but it's still risky. In a poor seller's market you do have the upper hand with an ability to deal on a house you want to buy. Also, there are a lot of people unable to keep mortgages who are now renters. But the rule of thumb is that if you can't afford paying the dual mortgage for 6 months, you may want to reconsider. A rental will NEVER be at 100% occupancy. Good job thinking about your financial future, though. Keep it up!

If you're in a good housing market you should be able to rent a townhouse without a problem. Just make sure you throughly check out the renters. I have heard horror stories of people renting and ruining units completely. Many of these people are professionals too, not low income.

Make sure you have a good down payment on your house so the bank will finance you easier.