Being a single gal with no kids or deductions is something that the IRS drools over. I'm sure they drool over single men who have no deductions as well...or is that me that drools over them??? Sorry, I digress...I have a small 2 bedroom house in a pretty nice area of my growing city. I paid off the mortgage about 5 years ago (a good thing) but am now being taxed at a really high rate because I have no deductions (a bad thing). Darn IRS won't let me use my two rescued dogs as deductions...hehehehe.

I've been really looking into the option of purchasing a second house. I figure now is the last time in my life ('cuz I'm getting old) that I will see the bottom end of a real estate cycle. What I'm wrestling with the most is if I should buy a second house and move into it or buy one that I'll rent out to someone else.

With the housing prices currently down in my city, I've been looking at several ways I might make this happen.

1) Buy a second house, move into it, then rent out my first house.

2) Buy a second house and rent it out.

3) Buy a duplex or multiple unit piece of property, move into one and rent out the others, including my current house.

4) I know there are other options I haven't thought off. Insert yours here!

The first option allows me to get a house at a lower interest rate and will give me about $1200 a month in income from my current house being rented (not taking into account vacancies). One realtor suggested that I get a loan on my first house since I already own it and pay for the second house in cash. I'm not knowledgable on how that works, but maybe one of you does?

The more I cruise around my town looking for houses, the less inclined I am to move. Seems that I did a good job 16 years ago with location, location, location. There's no way I can afford to upgrade in my own neighborhood! Other neighborhoods aren't looking too appealing in this town.

The second option means that I'll probably have a higher interest rate on the loan and a larger down payment because the purchase is considered an investment. Not sure what the income would be on the house as I havn't found one to buy yet. Would really like the rent to cover the payments...but????

The third option I'm even more confused about. I've heard things like I'll only be able to deduct 1/2 the payment/interest from my taxes if I live in one and rent out the other (duplex as an example). Someone else said it's still an investment property and I'll have to pay the higher interest rate on any loan I get.

Overall, I'm just not sure what to do. I keep researching and reading as much as I can so I have a better idea of what I should do. I have no clue if I'm cut out to be a landlord, but on the other hand, I just can't keep giving so much of my $$ to "Uncle Sam". I'd like to retire at 55, but will probably have to keep working until 62. I won't need a lot of $$ when I retire, but I don't want to have to worry about scrapping by, especially with any health care costs.

All suggestions welcomed!