Is it smart to rent out your underwater home instead of selling? Should I rent for a couple of years before taking on another mortgage?

Asked by Fallbrook Refugee, 92028 Thu Oct 21, 2010

We purchased our home in 2005 and have lost 200k in value. The location of our current home is no longer convinient for us and we have also outgrown our home (we now have two kids). In the current market we can afford a lot more home (we are also better off financially than we were in 2005). I was told by a mortgage broker that it makes more sense of us to rent out our current home instead of selling. The problem is, we have to prove that we can afford both mortages without the rental income until we have two years of rental history. This means we can't really "move up". Does it make sense for us to rent out our current home and move in to a rental house for two years until we have the necessary rental history? I thought about "rent to own" but was told it is a bad idea.

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Don Nelson, , Fallbrook, CA
Wed Dec 15, 2010
This is such an interesting question. I hear alot of agents comending people for holding on to the bitter end. Lets look at this from a financial perspective. Your underwater 200K the market is not going to improve anytime soon. I think alot of Americans think we are going to go back to 2005 and 2006 prices. This is just not going to happen unless another Real Estate bubble is created. Once the market hits bottom we are looking at normal equity growth rates of 3-7% per year if we are lucky. How long will it take you to get even at normal real estate growth rates? In the commercial real estate world stratigic default is the status quo if your really underwater. Wall street does this all the time to the tune of billions of dollars. But the residential consumer is led to believe they need to "do the right thing". and destroy their families financial future and hang on no matter what. If its good for the goose its good for the gander. If I were you I would consult with an excellent real estate attorney, CPA and a qualified realtor and come up with a game plan that will get you where you want to go with the least amount of pain.
1 vote
Kari Shea, Agent, San Diego, CA
Thu Oct 21, 2010

It is important to remember that we are here to advise you in real estate. However, what you may need is legal and tax advice rather than advice from real estate agents & brokers.

We suggest that you seek the advice of a real estate attorney to understand the legal ramifications of what you are contemplating and a CPA to understand the tax effect. After that, talk to some local branches of national lenders (Wells Fargo, B of A, etc) and ask questions based upon the advice you receive from the other professionals.

If you decide to sell, it would most likely be a short sale (unless you put more than $200K down) and you have to prove that you have a financial hardship in order to execute a short sale.

Best of luck to you with what you decide.

Mark & Kari Shea
Shea Real Estate
San Diego County Experts
1 vote
Thalia Poulos, Agent, Temecula, CA
Thu Oct 21, 2010
Hi There: Looks like you bought at the top of the market as did many, many others including me. This is a complicated question. I am going to focus on your current home as-is:
Would you consider staying there even though it's cramped? How inconvenient is the location?
Does your current home offer a good school district or have other specific positives?
Do you like the house? The neighborhood?

I've been a landlord for over 20 years, and it's not for everyone. Have you ever done it before? There's a lot to think about.
No one has a crystal ball -- there's no way to predict what will happen in the future about your home's value.

I would contact your CPA before making any change. Ask this same question of him/her. If you need an opinion of value on your home, I would be happy to put together some accurate comps for you as I work in the area. Best of luck. Thalia Poulos, Dream Estates Realty, Fallbrook, CA
1 vote
Dave Griswol…, Agent, Bridgewater, NJ
Thu Oct 21, 2010
Hi Fallbrook, Rent to own rarely works out. As far as your home being worth less, try to do a modification it's time consuming, and a big headache however if you get one then it may help. IF you can get it then stay in your home another year if you can or maybe with a lower payment you can rent it out and make a bit or go flush. Buying if you can now is as they say a perfect time to do it. If your home is worth less now so is one you would want to buy. Most homes on the market today are already priced below their value giving you good equity for the future.
What you can do is find a home you like and try to get a mortgage based on the rental you will recieve for your current home. Most banks will want you to have it actually rented out prior to giving you a mortgage commitment on your new place. If you have your current home rented out for your closing date or there abouts on your new home and proof of it then if all is as you say you should be able to buy your new home.

Home this helps
All the Best
Dave & Lisa
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1 vote
Kevin Olson,…, Agent, Colorado Springs, CO
Thu Oct 21, 2010
I don't think it really makes sense to rent for 2 years to build up the history necessary. Lots can go wrong when you are renting a home, and, we don't know whether or not rules won't change in two years time. There is nothing that says requirements won't be longer for rental history by that point, and then you're in close to the same situation you are today.

Rent to own is an option, but in doing that I would have both a Realtor and an Attorney on your side to keep it from becoming a bad choice. I would contact a financial advisor to see what they recommend for your given situation.

Best Wishes,
1 vote
Alexander Gr…, Agent, San Jose, CA
Thu Aug 15, 2013
I was just looking through old post and I noticed yours. If you were not able to refinance at the time of the post, I can certainly help you out now. You can call me at 408-352-5147 or email me at You can check us out at I will look at your situation and present you with some options.

Alex Greer
NMLS #1056079
0 votes
Deborah Garv…, Mortgage Broker Or Lender, San Diego, CA
Thu Oct 21, 2010
How is your credit? Reserves? Employment? Where would you be trying to buy? There are many, many variables in trying to qualify for a mortgage. Great credit/reserves compensate for a lot. As does substantial down payment. Before you make a decision one way or the other you need to review all sides of the the equation: finance, real estate, tax, credit. Be leary of anyone who has more to gain by your decision than you do.
0 votes
Marge Bennett, Agent, Fort Myers, FL
Thu Oct 21, 2010
I think David's idea is the best. But I just wanted to write and tell you how much I admire you for not seeking the easy way out.
0 votes
Who is David? I've seen no post from a David, but if he has good ideas, I would very much like to read them. Starla Jones, Georgia
Flag Sun May 17, 2015
Daniel Di Ma…, Agent, Chula Vista, CA
Thu Oct 21, 2010
Renting your home out really has no advantages for you.
You might as well try to short sell it (if you qualify) rent for 2 years and then buy your ideal home without having to deal with an underwater investment.
I'd be happy to answer any questions you might have on the subject.
Good luck,

Daniel Di Matteo
CENTURY 21 Award
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