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
- You may be able to rent the property for more than it costs to own it per month, producing positive cash flow.
- The many tax benefits of being a landlord.
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:
- Determining the market value of your home;
- Helping you find a reputable lender to walk you through the qualification process; and
- 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!