First-Time Homeowners Are Turning Their Houses Into Rental Properties

Rental properties are hot, and prices continue to climb as home sales hit record lows.

A mix of unavailable inventory and high mortgage rates of over 7% have driven people to wait out the inflation and mortgage interest rate storm and rent a place to live. This is good news for owners of multifamily dwellings, but some homeowners are looking at the prospect of renting out their own homes. 

Airbnbs have grown out of favor in some communities with new restrictive tax laws, permits and zoning ordinances making the process extremely difficult and expensive. Those communities are increasingly balking at a steady flow of people coming into neighborhoods for days, weeks and months with a lot of temporary tenant turnover. A newer course of action is homeowners renting out their first homes to help finance their second. 

Obviously, most people who bought their first homes weren’t looking at them as potential investment rentals in years ahead. But the current economy has some homeowners thinking about the money they could earn — far above what they pay in home mortgages.

It’s also a good way for young homeowners to dip their toes into wealth building, and there are few investments more lucrative than owning real estate. 

“Anyone who can afford to keep their home and rent it out while moving into another one should do so,” Cedric Stewart of Entourage Residential Group in Rockville, Maryland, told Rocket Companies Inc.’s RKT Rocket Homes. “In a healthy market, you are likely to build equity year-over-year while having your mortgage covered by a renter.”

Investors turning to rentals is also turning the goal of homeownership in a new direction, Mynd Property Management CEO and former NFL placekicker Dave O’Brien told Benzinga. “There’s an interesting dynamic at play with the American dream, and single-family platforms and investors derailing that. Investors are buying rental properties because they want them. They wouldn't be doing it if there wasn’t demand.” 

Mynd commissioned its own 2022 Consumer Insights Report and found that almost half of millennials and Gen Zers (43%) are considering buying an investment property compared to only 9% of baby boomers and 27% of Gen Xers. The study also found that about two-thirds of millennials and Gen Zers (68%) agreed that investing in real estate is a wise financial decision

“What is newer and more interesting is that we’re seeing more and more people rent the home they live in and invest in other properties in other markets, purely because of economic factors,” O’Brien said.

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Mynd is in 25 markets across the country and uses proprietary technology and expertise to help investors find, finance, insure, lease, manage and sell single-family rental properties.

“There’s a lot of different dynamics at play with rentals,” O’Brien said. “There’s seasonality and the economy, which could be causing this despite wage growth and lower unemployment. There’s a lot of demand, but I think the rent growth in the past couple of years is an aberration and not sustainable.” 

One concern for this practice is that most looking to rent their homes have not been trained in finding tenants. It’s an advanced vetting process to find one capable of consistently paying their rent and keeping the house in good condition.  

Not ready to rent out your existing home? Benzinga has other options for you, such as investing in rental properties with as little as $100. We’ll show you how. 

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