If you are moving from a home that you have lived in you may want to consider the benefits of renting your property, rather than selling it. Of course, that precludes your needing the profit to come up with your down payment for the new residence, but if you don’t need that, then renting may be a viable financial strategy!
First, renting your home will provide you with largely sheltered income due to the write offs of expenses and depreciation. And its been said, its not how much you make, but how much you keep that is important”. Don’t be swayed by the naysayers who point to some of the difficulties in being a landlord. While obviously not every wealthy person got there through Real Estate, most wealthy people I know have some investments in property!
You also get the advantage of it being a great rental market in the Bay Area right now. All the people who have lost their homes have to live somewhere and they are wiling to pay substantial rents for quality housing! By substantial I am talking about several thousands of dollars a month, enough to cover many 8-10 year old mortgages, and perhaps the taxes and insurance to boot!
And if you might foresee moving back to this area in a few years you would have housing available and not have to purchase a home at the new higher prices!
You also get to ride out this recession a little longer and if you do eventually want to sell you won’t have to accept the lower prices most homes are now commanding.
But, that being said there are also some serious pitfalls to renting your home. Your tenants may not take as good care of your property as your would. The wear and tear they put on the property will need to be repaired. Or, on the flip side, if you do not rent it it will be sitting idly while you have to continue to pay its mortgage, along with the cost of your new residence.
The tenants and/or their guests could come after you should they suffer a loss of personal property or bodily injury which could in some fashion be attributed to your ownership of the property.
There are no guarantees and your price could actually go lower if the economy gets worse. And if you do have substantial appreciation, and you rent for longer than 3 years after you have moved out, you may loose the $500,000 tax break Homeowners enjoy. Make sure you consult an experienced accountant so you know what you are doing?
And finally, you would not have the equity available to invest in other property, which may be even more attractive than your home?
Both scenarios have their pros and cons. If you decide to rent be sure to use a qualified property manager to check out the prospective tenants ability to pay the rent on time, and check their references to minimize the possibility they would disrespect your property. Also, if a pipe breaks at 10:30 PM on a Saturday evening the tenants will be calling them, not you! And for 5-6% of the rent, that’s a price well worth paying!
Corrin Trowbridge is a Farmers insurance agent in San Bruno, CA and he can be reached at 650-FARMERS, or www.trowbridgeins.com
