Should you Sell or Rent Your Current Home?

If you’re thinking of selling your current home and not sure if you should keep it as a rental, or sell it in order to buy your next home, this post is for you.

The Steps Involved

1. Crunch the Numbers

  • Determine the market value of your home.
    • This can be done by asking a Realtor for a comparative market analysis (for more precise numbers), or using one of the many online home valuation sites, like mine, if you’re just looking for a ballpark number.
  • Determine how much you currently owe on their mortgage.
  • Take the market value of your home, subtract 7% (estimated sales costs), then subtract your mortgage balance (and any other money that would be due if you sold it).

Equity = (Market Value of Home x 93%) – Mortgage Balance

2. If you don’t have equity in your current home, then it’s a candidate for renting.

3. If you do have equity in your current home, ask yourself:

  • Do you need the equity as a downpayment for your new home?
    • If yes, then you’re most likely going to have to sell your current home.
    • If not, then you may wish to rent, or sell it.

4. Reasons Renting can be Enticing Option

5. Drawbacks of Renting Your Home

  • If you decide not to sell, the market could take a dip, leaving the future value of your home much lower than it is currently.
  • You could incur negative “cash flow,” which is hardly desirable.
  • The cost of ownership might be more than you think, given:
    • Your property will become vacant at times.
    • You must continue to take care of your home, and must budget accordingly. Not doing so could hurt the value of your home.
    • Your lender may build in a vacancy of as much as 25% of the income, which may prohibit you from qualifying for your new home.
    • When your tenant moves out, you’ll incur turnover costs (e.g., replacing damaged appliances and fixtures, painting, cleaning, replacing flooring…).
    • It can be tough to refinance a rental property should interest rates drop.
    • Owning only one or a few rental properties can be a hassle (i.e., do you have the financial ability and determination to take care of the 2 o’clock leaky toilet calls?).

I hope this post was helpful. If you’re in this situation, I would love to help walk you through it. Some of my services could include:

  1. Determining the market value of your home;
  2. Helping you find a reputable lender to walk you through the qualification process; and
  3. Determining the rental income you could expect from renting your home, as well as a budget for owning your home as a rental.

If you’d like to get in touch with me, then let’s chat!