Mortgage Owners: Should You Sell or Rent Your Home When You Move?

Mortgage Owners: Should You Sell or Rent Your Home When You Move?

To sell or rent?

This question is on the minds of any “mortgage owner” who suddenly finds themselves needing to move.

Having a tenant pay your mortgage is a great way to build equity, but home prices may not increase in years to come, which can be a problem once you do sell. Oftentimes, selling and getting yourself free and clear can be the much smarter move. Despite all the “let someone else pay for the house for you” mentality that’s so prevalent when the real estate market is stable.

This decision can never be an emotional one. You’ll lose every time if you let them get in the way.

1. What are your financial goals?

And will owning the property make it harder for you to pursue your other career/money ventures? Rental properties, for the most part, represent equity. They’re not an income. You don’t charge above and beyond the monthly mortgage payment so you can use the leftover cash to finance your new home or car.

You’ll even need to budget some of your own income for rainy day stuff like a furnace breaking down in the middle of winter. Or for when the tenant leaves in the middle of the night and leaves you holding the bag for the mortgage that month. As a landlord, upkeep is your responsibility.

Sometimes the equity you have built in the home will better serve you in your banking or investment accounts. You have to carefully weigh the rental market first. Ask around. Look in the paper and online classifieds. Where’s the biggest financial upside in relation to your financial goals in the next couple of years.

2. How’s the real estate market?

People always need a place to live. However, buying a home makes buyer’s fickle. Unless you have the perfect house in the perfect area, you could be left praying and hoping someone will take this burden off your hands for years.

Putting a “For Sale” sign on a home in a cold market is like owning a half-million-dollar limousine and parking it in your backyard. Why not rent that thing and make some cash?

You never know when the market’s going to go up. If you can break even or hit a small profit, you might just add a few years to your life for the stress you saved yourself.

Image Credit: Nan Palmero/Flickr
Image Credit: Nan Palmero/Flickr

3. Are you going to be buying a new house when you move?

A mortgage is debt no matter how smart you think you are with your finances. Selling your home wipes away your current debt and will allow you to get another mortgage much easier.

That is, unless you can rent your current home for much more than you’ll be paying on your current mortgage — to an extent. Yours and your spouses income matters a lot when it comes time for the lender to calculate your debt-to-income calculation.

You’ll want a minimum four months mortgage stowed away if you decide to rent, in case the house sits for a month or few — or a tenant trashes the place and disappears into the night.

4. Has your home appreciated significant value during ownership?

This includes things like renovations you’ve done, a school being built in the area, a bustling new mall or mini mall, etc. You can’t count on these things to happen once you start to rent. If the property’s value has appreciated significantly, it’s probably time to sell. Talk to a few real estate agents and get their thoughts on what your home’s worth — after a professional appraisal of course!

If prices haven’t gone up in a while but the neighborhood is stable or on an upward climb, renting for now might be great advice.

5. Who are you going to rent to (ie., can you handle the work involved?)

You’re taking the risk on them, not the other way around. Just because they sign a lease doesn’t mean something out of their control won’t happen. Are you prepared to sue a mother of three kids who just lost their husband in a tragic accident because she can’t afford to continue the lease?

It takes a calculating person to absolve themselves from feeling any sense of morality.

Then there’s the plain bad tenants who act great during the interview, give you a great gut impression, then one day when you arrive to pick up the rent you find your once beautiful home to be a crack den filled with garbage.

There’s a lot of vetting involved in finding a potentially good tenant: credit and criminal checks, income verification, reference checking. The list goes on.

Sometimes hiring a property management company with a good reputation is a good idea as opposed to handling all the details yourself. They work for you and if they don’t do their job, they lose it!

Bad Renters?
Image Credit: J.B. Hill/Flickr

6. Do you have the nerves of steel needed to be a landlord?

Most important, can you stay away from the home and still sleep at night? No tenant wants their landlord dropping by unannounced all the time — or ever for that matter. And they’ll certainly start to get suspicious if you’re constantly driving by their home real slow or walking your dog and staring at the house like a thief on stakeout.

Weigh the price you could get selling and whether that makes you feel better or worse having that equity investment lying around and relying on someone you don’t know to keep it safe from harm.


Main Image Credit: Tony Webster/Flickr

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