Should I Sell My House and Rent?
Can't decide between buying a new house again after selling your current home or renting for the meantime?
Totally understandable.
Current homeownership rates in the United States stands at 66%, which means having a house to call their own remains a priority among Americans. But then there are instances where it would make more sense to rent, depending on your personal circumstances, financial situation, and the current housing market.
Renting makes sense when you're looking for flexibility, especially if you're under 35 and have yet to decide where you'd settle. On the other hand, being a homeowner gives you a sense of stability and financial benefits such as being able to build your equity, and tax deductions.
In this article, we'll highlight some key differences and advantages of each option, so you can make an informed decision on what you should do after selling your home.
Should You Sell Your Home and Buy a New House?
There are a myriad of reasons why you'd decide to sell your home: downsizing, job relocation, a messy divorce, or financial distress.
Probably your biggest worry after selling your home is finding a place to live.
Or maybe, you've already found the one for you--in other words, your next home--but you're hesitant to commit. Let's look at the advantages of home ownership and see if letting go of the cash from the sale to fund your next purchase is worth it.
The Benefits and Drawbacks of Being Homeowners
Mortgage payments are stable and predictable
The most popular type of mortgage is the 30-year fixed mortgage. With a fixed mortgage interest for the entire life of the loan, this means stable monthly payments, allowing you to plan way ahead and factor it into your budget.
Another advantage of getting a home with a 30-year mortgage is minimal down payment--with an FHA loan, you'd only need to put up as little as 3.5%. However, because the loan term is so long, you'd end up paying a significant amount of money on interest alone.
The monthly payments you make allow you to build equity
For many homeowners, the opportunity to build equity is a key benefit in having your own property. Equity is defined as your home's market value net of the liens attached to the property. Your equity increases as long as you regularly pay your monthly mortgage payment.
One thing to keep in mind though, is not all payments you make go towards building equity. Property taxes, maintenance, insurance--these are all costs of ownership, and do not go towards paying off your loan.
As a homeowner, be prepared for higher annual costs compared to your renter peers.
You Can Pick Where You Want to Live
When buying property, you have a choice of picking exactly where you want to live. Proximity to your office, your children's school district, access to public transportation, are among the factors you must consider in choosing the location.
This is an advantage over renting, as not all places have a robust rental market, so that means if you're a renter you'd be limited to areas with available rental properties.
However, if you suddenly change your mind about the location, the process of selling it again to move elsewhere can be expensive and time-consuming. Think about it carefully before fully committing!
You Have the Freedom to Make Changes and Upgrades
Having the freedom to decorate your space to fit your tastes and lifestyle is probably one of the best perks of being a homeowner. Want purple walls? Go ahead, you don't have to ask permission from your landlord. Façade is begging for an update? Replace that faded paint with trendy stone veneers!
There Are Tax Benefits to Being a Homeowner
Homeowners have the upper hand over renters when it comes to dealing with taxes.
In the first few years of paying your mortgage, almost all of your payment goes towards paying off the interest. This interest can be deducted from your taxable income come tax season through a Home Mortgage Interest Deduction (HMID).
To be able to take advantage of this cherished tax break and many more, consult with a tax professional or an accountant.
Owning Real Estate Is Cheaper Than Renting Over Time
Renting single-family houses in the United States costs $2,018 a month on average, whereas the average mortgage payment is $2,064 monthly. With the latter, you get all the benefits of home ownership for the same price! As an added bonus, you have the option to sell or rent later on.
“I Want to Rent Out My Property.”
If you do decide to become a landlord yourself, you'll have a steady cash flow from the rental income, similar to having a proverbial goose that lays a golden egg on a regular basis! Don't want the stress of managing a rental? Then you can just hire a property management company and continually collect the rental income.
“I Want to Sell My House.”
If you end up selling your property, profit is almost always certain just from appreciation alone. You can either sell fast to a cash buyer or a real estate investor, or if you want to sell the traditional way for the highest possible price, you can work with a real estate agent.
Just don't forget to deduct the closing fees and the realtor commissions when going with the latter option, so you'd be able to choose the option that's perfect for you.
Or, Should You Sell Your Home Then Rent?
Maybe you're thinking of renting after selling your home as a temporary arrangement. You're just taking yourself out of the fierce buyer competition in a hot market. Perhaps, you're done with owning a home and its accompanying headaches, and instead considering a lifetime of renting.
Nothing wrong with that either!
And with that, let's explore...
The Perks and Downsides of Being Renters
You can take your time choosing a new house that would be a perfect fit for you and your family
Setting aside some of the profit for renting after you sell your home gives you ample time in choosing your next house. Unless you're a live-in house flipper who'll be selling your primary residence after doing the necessary repairs and upgrades, you're most likely looking for your next dream home where you'll live in for the long-term.
Renting gives you the freedom of exploring your options without rushing to commit in a neighborhood or a property which you might regret down the line.
A downside of this is dealing with the hassle and expense of having to move twice when you finally find the property for you.
No Mortgage Payments, Property Taxes, and Other Carrying Costs to Worry About
Carrying costs is one of the key factors that buyers have to take into account prior to purchasing a property.
Here's an estimated annual cost breakdown of homeownership:
- Home improvements: $ 3,300
- Utilities: $ 4,800
- Maintenance: $ 3,000
- Property taxes: $ 2,500
- Insurance: $1,700
- HOA fees: $ 2,400
The total just falls short of $18,000. And this is on top of the mortgage payments--about $24,000 yearly, that you have to make! Compare that to the median American income of $ 70,000 annually, you'll end up setting aside more than 50% of your income for house alone. The costs of ownership can be too much to bear.
Whereas, if you're renting, you'll only need to worry about your rent and nothing else. Leave all the above costs to your landlord, as they have certainly factored everything into your rent anyway.
The Downpayment Could Be Used Elsewhere
Coming up with a down payment, usually 5%-20% of a home's sale price, presents the biggest barrier to homeownership for home buyers and aspiring real estate investors alike. Once you put down the cash for a home purchase, that's it: it won't yield anything for you.
Rather than pay the down payment with the proceeds from the previous sale, you can instead use it as seed money to start a business, invest in the stock market, or other lucrative investments to help you save up for your dream home.
No Need to Make an Offer With a Home Sale Contingency
Unless you have plenty of cash lying around, you typically have to wait for your house to sell so that you can use the proceeds to purchase a new one.
Say you want a certain property, however, you don't have the money to pay for it yet, so you include this contingency in your offer. Thus, the purchase of this property is contingent on you selling your own home--essentially asking the seller to take it off-market in the meantime. Depending on current market conditions, you'd be hard-pressed to find sellers who might be amenable to this.
To get around this, you can rent in the meantime so you can make contingency-free offer on your next home.
You Are Not Responsible for the Maintenance and Fixes on the Rental Property
Homeowners have to set aside between $3,750-$15,000 annually on maintenance costs alone. It's a big chunk of money, but if you choose to cheap out on this, it will definitely come back to bite you later on, resulting in even more expensive repairs.
Fortunately as a renter, you're not responsible for fixes, upgrades, and general upkeep in the house that you are renting. Repairs that ensure a house is habitable and up to code usually fall within the purview of the landlord such as:
- Heating, Ventilation, and Air Conditioning (HVAC): boilers, radiators, or air conditioners that need to be replaced
- Plumbing problems: leaky faucets, failing septic system, or water leaks
- Electrical issues: electrical shorts, crossed wires, faulty switches
- Pest control: termites, bed bugs, cockroaches, rodents
Ultimately, what your landlord will or will not repair depends on your lease agreement.
Move Anywhere You Want, Anytime You Want
Securing and moving into a rental property takes very little time, sometimes within a week. Compare that to finding a new place, negotiating some repairs (if there are any), waiting for the repairs to be completed, and closing on the sale, it could easily take you 45-60 days on average.
Another perk when you're renting is that when you decide that the property or the neighborhood is not for you, breaking a lease is quite easy versus having a buyer's remorse and going through the arduous and complicated process of putting your newly purchased house back into the market. Just be sure to check your leasing contract for more details and avoid penalties.
However, this flexibility that is a boon to you as a renter can become a bane just as easily. For example, you will have to move out if your landlord suddenly decides to sell the property, or if he suddenly increases your rent beyond what you can afford.
You’re Insulated From the Fluctuations of the Housing Market
In a seller's market, demand outpaces supply, resulting in elevated home prices. Renting until the market cools can help you avoid paying higher prices for your next home purchase.
Furthermore, whatever happens with the housing market, your rent stays pretty much the same--until your lease contract is up for renewal at least.
There's a risk to waiting for market cooldown though. No one can predict market behavior, and if the hot market continues well into the future, an individual's buying power decreases, and you might end up paying rent for a long time without building any equity.
In a worst case scenario, you might even be locked out of the area you're eyeing, as in the case of the real estate market in Florida, which experienced an eye-popping 30% appreciation in home prices.
High Mortgage Rates at Present Can Be Prohibitive
In this year alone, largely due to the efforts of the Fed to curb inflation, mortgage rates have more than doubled: from 3% in January, to over 7% in late October. These rising mortgage rates have had buyers put their plans on hold until interest rates stabilize.
Since you have just sold your home, you need not rush into a new home purchase especially in this market.
One tactic to waiting it out is to rent for the meantime and place your supposed down payment into lucrative investment instruments. Be sure to consult a financial adviser or a real estate agent to figure out the best strategy for you.
Bottom Line: Is It Better to Rent or Own a Home?
There's no right or wrong answer in deciding whether to buy or rent, since both has benefits and drawbacks. Owning a home isn't always the dream it's always presented to be, and having to pay rent every month doesn't automatically mean you're throwing money away with nothing to show for it later on.
Closing Thoughts: Renting vs. Buying New Property
Ultimately, what matters in your decision is what you believe the future holds for you, cliché as it may sound. If you're ready to put down your roots, then getting a new home should be for you. If you can't see yourself being tied down just yet, then renting for the meantime should be the way to go for you.
Need help in selling your current home fast?
Here at House Buyer Network, we'll quickly connect you with a cash buyer who can give you an offer within 24 hours. No need to worry about closing costs or title insurance. It's on us! And we close on your timeline too!
Fill in our form below with your address, email, and phone number to get started.
If you're still on the fence about what to do after selling your property, give us a call at (855) 835-2544, and we'd love to help you in your decision-making.
