How do I know if I should try to sell now, or rent my house out & buy another one of similar value?

Asked by Stieg Strand, Eden Prairie, MN Mon Jan 5, 2009

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Cameron Piper, Agent, Forest Lake, MN
Mon Jan 5, 2009

Whatever you do, don't buy another house until you have sold and closed (or at least have adeuquate provisions in the new PA to get you out should the sale fall apart on your present home) on your present one. Take some time and read through some of the posts here and Trulia where people have had the same idea but are now in foreclosure because the renter didn't pay or they couldn't find one or . You are operating under a couple of flawed assumptions:

1. The market will rebound quickly - most people say they will rent their house until the market turns. That doesn't make sense though - the turn will be the bottom and the market will not rebound quickly. Some estimate that values are down 25-40% since the peak. Figuring a 5% appreciation rate (which will likely be high) it will take between 5 and 8 years to get back to break even for some people. That also assumes that we are at or are near the bottom - nobody knows where the bottom is and if prices continue to fall then we can add more years to most people's rental careers. Renting will not be a short term fix.

2. Renters always pay. I can tell you from experience that this is not true. Consider that if you have a decent job (money) and you know how to manage money (credit) and for some reason you don't own a house - you would be buying one right now (some say this is the best time to buy real estate since the great depression). Everyone else is renting. That means that people that will be renting from you won't have income or they don't know how to manage money very well. While this is a gross generalization it will hold true 90% of the time. The pretty significant gamble when you will be counting on that income to pay the mortgage on your present home.

3. Renters leave the house in the same condition as they found it. I can't tell you how many time I have had to pursue a renter's damage deposit for things that they consider "normal wear and tear". Doesn't every house have holes in the wall after living in it for a few months?

There will be plenty who disagree with what I have to say here, but my best advice is to either sell, sell short, or stay put.

Cameron Piper
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The Roskelly…, Agent, Gambrills, MD
Sun Jan 9, 2011
Hi Stieg,

The only answer to this question is to start by consulting a good local Realtor to determine your properties value for sale and rent, and to advise on current market conditions.
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Myra Gouger, Agent, Las Vegas, NV
Sun Jan 9, 2011
It would all have to depend on when you bought and what your carrying costs are each month. If you bought in the 70's or 80's or even the early 90's you might make money on your home. If you bought in 2007, you might lose a significant amount by selling. On the other hand, the rental comps for similar homes in your area might be too low to cover your mortgage, insurance, etc. etc. It starts with the numbers and the valuable information that a real estate professional can provide you. If the numbers look good to where you can get a profit, then it is the right time to sell. If the rental comps look terrible and you would be subsidizing the home with the renter by a significant sum each month, then it is neither the correct time to buy or rent. It is the time to stay "put." Do the math first, then make your decision.
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Cathy Wildung, Agent, Maple Grove, MN
Sun Jan 9, 2011
I tend to agree with Spirit Messingham in Tucson. I think it's risky to rent your home out because of the possibility that the renters may damage your home and/or not pay the rent. You should probably try to sell it before you buy something else or stay put for the time being. You may be able to find something in another area for either the same price or less, and you can rent while you are looking for a house.
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Spirit Messi…, Agent, Tucson, AZ
Wed Jul 28, 2010
I agree with Cameron. Stieg, this really is about you and your tolerance level. Do I think the market will ever go back up, of course, in time (a long time from now). More than likely, the market, at least here in AZ, will decline a bit more. If you sold now, took whatever capital off the table and invested it in something else, would that net you more money? When we bought our new house, I had the same ? two years ago, and I decided to sell my starter house. My mother was a Realtor and did property management for 25 yrs, so I know the potential for headaches renting out properties. Long story short, the identical house next to mine just sold (2 years later) as a short sale for $65K LESS than what we sold ours for. In hindsight, we are so glad we sold. That is the thing about a decision like this, look at all the angles, all your options and in the end only you know what kind of tolerance level you have, my financial consultant agreed for whatever it is worth, that putting that money in something else other than housing right now, will get you a better return right now...who knows what the market will continue to do. I do not know if there is a "right answer" to this question, you simply need to find the "right answer" for you.
Good luck.
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Jackie Funk, Agent, Minneapolis, MN
Mon Jan 5, 2009
Hi Stieg:

The best way to know is to meet with a real estate professional that knows your market. As you can probably guess there are a lot of factors to consider with your question. While most of the Minneapolis metro market has seen a decrease, some properties are still selling at full or above asking price.

So, without further ado, my suggestion is for you to meet with a real estate professional in your area. Most of us meet with prospective clients for free. Best of luck to you!
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