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Real estate could provide you with a steady stream of income during retirement. Converting a large, single-family house into two or more apartments and renting them out could give you financial security, but there are several risks to consider.

Should You Renovate Your Home or Buy Another House?
Converting your current residence to apartments could be easier than buying another house. You wouldn’t have to spend time looking for a suitable house to buy and renovate, and you probably wouldn’t encounter any unexpected problems if you had lived in your current house for years and kept it well maintained.

If your current home wasn’t big enough to split into apartments or if you wanted to keep it all to yourself, you could buy a new house. You’d need to take out a mortgage and put at least 20 percent down. Your interest rate on the second loan would probably be higher than the rate for your first mortgage because of your high level of combined debt.

You might be able to tap into your current home’s equity to buy a second home, but that could be risky. If you defaulted on your second mortgage and your first home was used as collateral, you could lose both properties.

What Would You Need to Do to Convert a House into Apartments?
Before you think about converting any single-family house into apartments, check your local government’s zoning rules. Regulations and procedures vary widely. In some cases, a property needs to be rezoned before it can be split into apartments. That process could be simple or extremely complex and time-consuming, depending on the location of the house. You might need to make major changes to the structure of the house, the HVAC system and plumbing. Those jobs would require permits before work could begin.

Other Issues to Consider
You’d need to plan for property taxes and the possibility that one or more apartments could be vacant for several months at a time. You should set aside money for repairs and routine maintenance to the rental property.

If you lived in one of the apartments, you could keep an eye on the place and be available as needed for repairs and maintenance. That could be convenient for you and your tenants and help you avoid paying extra money for your own place to live, but the apartment you lived in couldn’t be rented out to generate income. If another apartment sat vacant for a period of time, you could struggle to pay the mortgage.

Think Things Over Carefully
Converting a house and renting out apartments could provide significant retirement income, but it could be risky. Renovations could be expensive, repairs could be needed at any time and units could sit unoccupied. Whether you’re thinking about converting your existing house or buying another to divide into apartments, carefully consider all the pros and cons.