Strategy 70 of 107 · new for the five-year plan
Move into the accessory unit and rent the main house
What it is
If the property has a guest house, basement apartment or backyard unit, move into it.
Steps
- If the property has a guest house, basement apartment or backyard unit, move into it.
- Rent the larger main house, which usually brings much more rent than the small unit would.
- Send the rent after the house's costs to principal.
Repeat: Monthly.
Measure: Main-house rent after costs.
Try it in the calculator Enter its amount in "Monthly non-income amount to principal". Add a payoff goal of 5 years to see what is still needed.
Risks
- Less space for your household.
- Zoning, permits and owner-occupancy rules for accessory units.
- Rental income is taxable.
Who it fits
Married couples, Single, Grandmas and grandpas (62 and over), Newlyweds, Average household, No high school diploma, No college degree
Needs
A spare room, unit or space to rent
How predictable
Depends on people or program rules (tenants, family, IRS records, lenders)
A worked example (hypothetical, not guaranteed)
Picture a hypothetical household (married couples). They owe $300,000 at 6.5% with 30 years left. The required payment is $1,896 a month, and that payment, which comes from income, never changes in this example.
They follow the steps: if the property has a guest house, basement apartment or backyard unit, move into it.
Suppose it brings $2,000 a month on principal from this strategy, not from the paycheck. The loan would be paid off in 8 years 4 months instead of 30 years, saving about $293,382 in interest. To finish in five years, they would still need about $1,974 a month more from other strategies. That is why the five-year sequences stack several at once.
The amount above is chosen only to show the arithmetic. It is not an estimate of what this strategy will produce for anyone. Put real numbers from the fact finder into the calculator.
Sources and more information
- IRS Publication 527: Residential rental property irs.gov
- Fannie Mae Selling Guide: Rental income from the subject property selling-guide.fanniemae.com
Where to get help
Related strategies
- 69. Rent the whole house out and live somewhere free or cheaper
- 65. Bank account sign-up bonuses, without credit pulls
- 64. Selling another property? Carry the note and route its payments to principal
- 63. Business owners: pay your children for real work
- 62. Self-employed: take the home office deduction and send the tax saved to principal
- 61. Merge households: a parent sells, moves in and shares the costs