Should You Sell Your House Now?

by Neal Frankle, CFP ®

If you are struggling financially you are probably considering making all kinds of changes in your financial life. But should you sell your house ? Is that a reasonable thing to do? It’s a pretty big decision. How do you determine if such a move makes sense or not?

Dan, a friend of mine faced that dilemma recently. His income was very modest and his expenses were eating up everything that came in – and more. He found himself dipping into his savings every month and he started seriously considering selling his home. We talked about it and I was really impressed with his thought process. Here’s how Dan figured out what to do.

1. What does it really cost me live in my home?

Dan kept good records and knew what he spent on average every month. But when he looked at what it really cost him to live in his home he was shocked. Dan lived in a fixer upper and over the years, the repairs added up.

The distressing thing was that those repairs never seemed to stop. If it wasn’t the garage it was the roof. If it wasn’t the bathroom it was the pipes. Dan never considered repair and renovation costs when he thought about his housing costs. He just added up his mortgage payments, insurance, taxes and maintenance and figured it cost him about $1500 a month to live in his home. But when Dan added it all up he found that he spent another $750 a month on average on repairs.

Of course those repairs and renovations didn’t come in every month. Sometimes there were actually no repairs at all for several months. That’s why it was important for Dan to go back over several years to determine the average monthly repair and renovation costs. Having gone through those costs too, he now understood that it actually cost him $2250 a month to live in his home – not $1500.

2. What are my housing alternatives?

Dan figured out how much house he could afford. Then he checked around and discovered that he could buy a smaller, newer place outright with the equity he built up in the current home. That would eliminate his mortgage and slash his repair costs. He figured that if he made that move, it would save him at least $1500 a month. Of course he’d still have taxes, insurance and maintenance but that would be far lower than his current costs.

Even though it wasn’t super easy to sell homes in his community at the time, he used a few innovative techniques to sell the house fast.

3. Should I rent out my house rather than sell it?should you sell your house

Knowing the total cost of home ownership helped Dan answer this question easily. He could rent the house out for about $2000 a month. But Dan knew that it cost him more than that to own that property – whether or not he occupied the home.

He therefore concluded that it made no sense to rent it out and it was just plain smart to sell it and move on.

If you are wondering if it’s time to sell your home, ask yourself the same questions Dan did. The most important item is to determine what it really costs you to own your home on average every month. Figure out your monthly recurring expenses like the mortgage payment, gardener, utilities etc. Then consider the annual foreseeable costs such as taxes and insurance. Finally, consider your average repair and maintenance costs. The best way to do that is to go back over what you spent on the property over the last several years and calculate your average monthly costs.

If you do this, you can easily compare the alternatives and make the best decision. Without looking at these numbers – and this was the genius of Dan’s process – you can’t make a good decision.

Dan’s choice was a good one. His big challenge was immediate cash flow and he solved that problem by selling his home. Is this the best time to sell property? No. Generally speaking it is a good time to buy property. But it makes no sense to hold on to property if you can’t afford to do so.

Have you considered selling your home to improve your monthly cash flow? What did you consider? How did you decide? Where you happy with the decision?

PS – I was included in the Festival of Frugality!


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{ 2 comments… read them below or add one }

Suzanne May 10, 2013 at 1:18 PM

My sister is in the middle of deciding what to do about her house. Due to divorce, she ended up with the big house purchased during the marriage in 2006, 45 minutes from work. She’s not sure where she wants to live nor what she wants to do. Even though it’s a big house with a big mortgage, I’m not sure she should sell it until she knows what she wants to do. She did refinance right after the divorce so she brought the mortgage down quite a bit. She’s asked me for advice, but I’m not sure what to tell her.


Pretired Nick May 10, 2013 at 6:17 AM

If we end up downsizing at some point, we’ll likely rent for 2-3 years to let the value run up a bit more. But then we’d be renting with positive cashflow so it’s a win-win. If I was being slowly drained, I’d probably get out in most cases.


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