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Is it a good idea to rent your home instead of selling it?

real estate
Photo Credit: Andy Dean/Adobe Stock

Are you currently thinking about selling your home? If you’re like most existing homeowners considering a sale, you’re probably planning to move into a new house and start the next chapter of your life. Selling your home will grant you an immediate injection of capital you can use as the down payment of your next home, and eliminate an entire financial liability. However, if you’re interested in maximizing your wealth and stabilizing your finances, it might be better to rent out your property instead of just selling it.

The basic idea is to buy your new home and move into it, but retain ownership of your previous property. You can attract tenants to live in it, and collect rent from them to cover the monthly expenses of owning it—and then some.

The Benefits of Renting Instead of Selling

There are several benefits to this arrangement:

  • Cash flow. One of the best benefits of this scenario is your ongoing cash flow. Let’s assume the mortgage payment on your previous home was $1,000 a month, and your new mortgage payment is $1,500 a month. Additional expenses are about $500 for both properties, resulting in $3,000 in monthly expenses for property upkeep. In your old neighborhood, you can afford to charge $1,500 in rent. Ultimately, you’re ahead of the game; the rental income covers more than the expenses of your old property, resulting in a small, but meaningful profit.
  • Property appreciation. Perhaps more importantly, your old property will continue to appreciate in value (assuming it’s in a good neighborhood). You’ll retain ownership, and rental income will more than make up for your ongoing expenses, so when you decide to sell the property in the future, you’ll get far more money for it.
  • Skipping the selling process. Selling can be a hassle, and a drawn-out one at that. If you choose to rent the property instead of selling it, you won’t have to worry about finding an agent, setting the perfect price, waiting for an interested buyer, and negotiating. You can simply move on.

The Downsides

However, there are also some downsides to renting your home instead of just selling it:

  • Initial capital strain. Many homeowners rely on the sale of their old house to finance the down payment for the new one. If you choose to rent your old property, you’ll forgo this option. That means you’ll need to come up with the new down payment entirely on your own, which may or may not be realistic for your current financial position.
  • Vacancies and tenant screening. Finding tenants can be challenging. If your property remains vacant, you won’t have rental income to offset your costs, and that means you’ll be paying for two properties out of pocket. Screening tenants can also be an exhausting and time-intensive experience.
  • Responsibilities as a landlord. Along similar lines, when you rent a property, you’ll take on all the responsibilities of a landlord. You’ll be required to keep the property in good working order, responding to tenant requests and taking care of multiple legal responsibilities. This can be overwhelming, and could take hours of your time every week; not everyone is prepared for this.

Is Renting Your Home Right for You?

Is renting your home instead of selling it the right decision? There isn’t an all-encompassing answer here, but there are some variables that can help you make the best choice for you, including:

  • Personal finances. What is your current financial status? Are you struggling to get by, living paycheck to paycheck? If so, you may find the financial strain of managing two properties too much—and you might not be able to feasibly save a new down payment. On the other hand, if you have plenty of cash in the bank and you can afford to take some risks, renting the property may be better.
  • The local market. Also consider the state of your local market. Are houses selling for very high prices? If so, it might be beneficial to sell now. Are rent prices exceedingly high, with lots of interested renters? It may be in your best interest to take advantage of that demand.
  • Disposition to being a landlord. How do you personally feel about being a landlord? Does the thought of getting an emergency text message fill you with dread and anxiety? Or do you actually like tending to home-related issues? Are you okay with making this a major investment of time?

Renting your previous home isn’t always the best decision, but it can be lucrative if you’re in a stable position—and if you’re willing to take on the responsibilities of a landlord. Think carefully about your current position, and talk to a real estate agent for further advice.

augusta free press
augusta free press