Two fiends of mine just became instantly famous by selling their home and becoming renters. That’s right. Lynne and Tim Martin wrote a book about how they sold their home and became full-time, world-wide travelers. The book sold out on the first day it became available. All the major news outlets are begging Lynne and Tim for interviews. Clearly, the idea of selling your home and renting is attracting attention. Selling your home now and becoming a renter might be a good move. I personally have a few clients who have done this and love it.
There are three main benefits as I see it, and they are biggies:
1. Free Up Capital
If your home has equity in it, it’s a great way to tap into that equity. Barbara sold her home recently because she was getting ready to retire. Her home was worth $500,000 and she owed $300,000. By selling the home, she freed up $200,000 in capital she had been sitting on. That allowed her to invest the money for greater income. She invested that $200,000 in mutual funds and travels too on the earnings from that money.
2. Save Time and Space
Getting back to Barbara’s example, by taking this course of action, Barbara saves the time she had been spending on keeping her place up. No more trips to the hardware store for her. Repairs are as close as a phone call away – to her landlord.
Added benefit — when she moved she had to clear the clutter and is very happy without all the junk that was lying around.
3. Lower Housing Costs
Barbara had a monthly mortgage payment of $2,000 (net of her income tax savings). On top of that, she had to pay for upkeep, taxes and insurance. That was setting her back another $7,200 a year – or $600 a month. That meant her total housing expense was $2,600 a month. Her rent is now $1,500 a month, and that means she saves $1,100 every month. That’s a good deal for her. Of course, let’s not forget the earnings she receives on the $200,000 in equity she now has access to. If you want to retire, extra income from a move like this could really come in handy.
If selling your home and renting elsewhere is such a great deal, why isn’t it for everyone? There are downsides to this maneuver. First, while Barbra is saving money now, her rent will go up over the years ahead while a fixed rate mortgage is…well…fixed.
Barbara has no control over what her landlord does, and now she lives in an apartment rather than in a home. That means more pesky neighbors around. It also means she can’t play her trash metal music at 3 a.m. unless she wants to get a visit from the local police department. In short, she gives up some privacy.
In her case, it’s not a big deal. She found a great rental with a nice landlord and pleasant neighbors. And she doesn’t engage in any loud activities. She really has all the freedom and privacy she needs.
I personally can’t see myself doing this even though the numbers make a lot of sense. I love having my own home and being able sit in the backyard with my wife, kids and dogs in peace and quiet.
Would you sell your home and become a renter yourself? Would you rent your current home to a tenant and rent somewhere else at a lower cost?