If you’re a homeowner who’s seen your property value soar in the current housing market, the thought of selling at a substantial profit might be tempting. But turning around and buying a new home in today’s competitive real estate market could soak up all that profit in another high-priced property.
However, selling to buy a new home isn’t the only option—you could also sell and rent.
Is a switch from homeowner to renter a good option for you? It depends on your circumstances, but but considering local market conditions and market trends, it can be a solid choice for your finances and lifestyle. Let’s take a look at how to make this decision and whether a switch is right for you.
Is Selling Your House and Renting a Good Idea?
If you’re asking, “Should I sell my house and rent?” you’re in good company. Many people tend to consider homeownership a universal goal and see renting a home as a stop along the way. However, that assumption isn’t always useful in deciding what’s right for you now, especially when considering housing prices and curb appeal.
Deciding between homeownership and renting depends on your:
- Financial situation and tax circumstances
- Lifestyle values and preferences
- Current family structure and living situations
- Hobbies, habits, and skill sets
Signs That Selling Your House & Renting May Be Right for You
We evolve over time as individuals and families. In other words, our energy levels, space needs, and opportunities can shift, influencing what kind of home fits you best at different stages of life.
You might consider selling your current home and opting to rent now if any of these circumstances apply:
- A move is in your future – If you’re wondering, “ Should I sell my house now, or wait?,” it depends. If a move is likely in the next few years due to retirement, work changes, children leaving the nest, or other reasons, it’s best to time your home sale to the local market instead of gambling on what kind of current housing market will be in place when you absolutely have to sell.
- Rentals are available and affordable – Whether you move down the street or across the country, research the rental market, including trends and predictions. Local regulations and economic development can drastically affect whether neighborhoods can flex along with population growth to avoid rental property shortages and rent hikes.
- Commutes are a non-issue – If you’re part of the massive wave of employees who have switched to remote or hybrid roles permanently, then your location needs may have changed since you bought your home. Without regular commuting as a factor, and with a rise in cash buyers, you might be able to sell your home at a home price that’s profitable and jump to a lower-cost location.
- Travel is a goal – Looking to visit grown children in other states, start the #vanlife, or travel abroad? If you’ve lost some of your delight at being at home, consider a change to gain more freedom and build up funds for travel.
- Your nest is looking a bit large – If the number of family members who live at home has fallen, you may not need the space that you’re paying for, cleaning, and maintaining. If you hear more echoes in bedrooms and communal spaces than you used to, switching to a smaller rental unit may be a better fit.
Benefits of Selling Your House and Becoming a Renter
You can find endless lists of the pros of home ownership online, and you probably read some of them before buying your current home. The opposite applies as well.
Living as a renter comes with benefits and if your route to renting includes selling a current home, it’s a pretty valuable list.
#1 Free Up Capital
With equity built up in your home—meaning, your home is worth more than you still owe on it—selling a house for cash can turn that equity into capital gain that you can use at your discretion.
While real estate is a solid long-term investment option in itself, you might not want to deal with learning how to be a real estate investor. Alternatively, you may want to convert that cash to a different use.
Cash flow from your home equity can be turned into:
- Alternative investment capital
- Funding for a new business
- Retirement holdings
What you want to avoid doing, however, is shifting equity from a growth investment (your current home) to cash that pays for a short-term need, such as credit card debt. Ideally, you’ll make the equity continue to work for you in a new way that grows and/or generates income. However, if your debt is racking up, you can certainly sell your house to pay off debt.
#2 Lower Your Housing Costs
Isn’t renting just throwing money away to pay for your landlord’s investment portfolio? This is a common concern, along with the idea that it’s a bad idea to lose a “free house” if you’ve already paid off your mortgage.
But monthly housing costs aren’t an equal calculation of mortgage payment vs. rental fee, particularly if you live in an older home. Considering housing prices and the value of a home price can make a difference.
When doing the math on your monthly housing costs, be sure to include:
- Monthly mortgage payment, including mortgage interest payment
- Property taxes
- Property maintenance costs such as lawn care, snow removal, and pest removal
- Major repairs and replacements such as roof, siding, and appliances
- Seasonal home inspections and tune-ups for HVAC systems and other utilities
- Homeowner’s insurance and liability
- Property-level utilities and fees such as garbage collection
Once you convert these outlays to actual monthly expenses, you’ll have a clear picture of your total housing budget. Then, you can compare homeownership costs against the costs of renting, including:
- Monthly rent payment
- Any share of upkeep or utilities assigned to the rental unit
- Renter’s insurance
#3 Take Advantage of the Seller’s Market
If selling your home appeals to you because of the current state of the housing market, renting can be a prime way to make your move quickly. The market can change rapidly, and with mortgage rates fluctuating, you’ll need a flexible solution to take advantage of a rare opportunity.
If you can see selling within the next few years for other reasons, definitely consider selling at a time when property values are high, and potential home buyers are looking for new dwellings.
#4 Reduce Your Risk of Unforeseen Costs
The excitement of a blackjack table isn’t what most people want to deal with in their monthly bills. In the best circumstances, housing costs are stable and predictable. But some find that renting can stabilize their costs even further.
For homeowners, unpredictable costs can stem from:
- Adjustable-rate mortgages that inflate monthly payments when mortgage rates rise
- Older homes with multiple aging systems nearing the end of their expected lives
- Newer homes with poor construction and materials that need frequent repair
- Homes that have been poorly maintained, creating spreading damage
- Environmental impact and disasters
Renters do still have to deal with the possibility of increases in monthly payments when a lease ends. The best way to address this risk is to:
- Investigate the local rental outlook in terms of units per renter and growth
- Avoid locations with rent control, which can depress rental construction and availability
- Ask for a rate history and about the stability and intentions of a prospective landlord
- Be a good tenant by paying rent on time and keeping the rental property in good condition
Regardless, for some homeowners, a switch to renting—even with the possibility of rent increases—can lead to more stable monthly housing costs.
#5 Free Up Time
Do your hobbies include raising chickens and maintaining a traditional English garden? Does your job involve plumbing or electrical work? Owning a home is a perfect fit for some people—it offers space and freedom to customize indoor and outdoor living alongside endless fix-it projects.
But for many of us, the maintenance and upkeep of a home might be a downside. Even if you hire out all tasks, shopping around for reliable contractors, property managers, gutter cleaners, and lawn mowers can take up tremendous time. There is always another air conditioner breakdown or tree that needs removing or leaking faucet to contend with, and it can add up to both time and stress.
If you didn’t have to take care of all the details of property management and ownership, you could free up enough time to start a side business, enjoy weekend trips away, or set sail on the water. All in all, a switch to renting could give you the time you need to chase your dreams.
#6 Streamline Your Life (and Stuff)
Minimalism has been a popular trend for several years, inspiring people to reduce the amount of stuff they buy and own, streamline their environment, and value time over objects. Whether you watch “Hoarders” as a cautionary tale or have no patience for clutter, if you feel like your belongings own you rather than you owning them, a smaller living space can help.
Moving from a single-family home to a rented apartment or home can:
- Provide a timeline and process for sorting and getting rid of unwanted items
- Place natural limits on what new objects you have space to bring in
- Reduce storage areas that are tempting to fill with seasonal and occasional-use items
- Limit the amount of DIY projects that you never quite get around to
Owning a home can be a bit like the Field of Dreams adage, “If you build it, they will come”—except it’s, “If you have the space, you will fill it.”
Sell and Rent with a Sale-Leaseback
Selling your home and becoming a renter can be a big decision and a beneficial life change. But aside from traditional renting, there are even more options to add to the advantages of renting.
One way to add more flexibility is a sale-leaseback.
A sale-leaseback program provides financial freedom and flexibility for families that want to stay in their current homes. If you’re considering a home sale to free up capital while your property value is high—but don’t want to shift to apartment living or downsize—a sale-leaseback can help you do that without even needing a real estate agent.
Renting has real benefits and provides financial flexibility. Depending on your circumstances, it can be a solid choice for your lifestyle. If you are ready to transition to renting, talk to a financial advisor to consider all of your options and see what might work for you.
Investopedia. Renting vs. Buying a Home: What’s the Difference? https://www.investopedia.com/articles/personal-finance/083115/renting-vs-owning-home-pros-and-cons.asp
Becoming Minimalist. What is Minimalism? https://www.becomingminimalist.com/what-is-minimalism/