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?
JP says
We recently paid off our house and now sitting on 500K equity. I thought this would bring freedom but the reality is a home with no mortgage still has many expenses including taxes, insurance, HOA fees, maintenance, repairs and replacements. In fact my paid off home costs about 2000 per month. Then there is the opportunity cost. Over the last 7 years of ownership we have made a TOTAL return of 13%. In hindsight I would have been better off having a “house payoff investment account” and getting way better returns. Now our money is locked up in the house doing no work for us.
We are now seriously considering renting and investing the equity. The only downsides we see are emotional such as not being in control and being able to do whatever we want or leaving behind the memories we made there.
We have also grown tired of working and have been getting into mr money mustache and other financial independence blogs and see the equity as a means to generate income to partially support a modest early retirement.
Neal Frankle, CFP ® says
I think the concept is fantastic. I have found the same dynamic with some of my clients. What we did to make it work best was to run financial projections to see the numbers work. I suggest you might consider doing the same.
Best,
Neal
Victoria says
I agree. I am retired and drawing Social Security. Virtually no savings as the retirement was forced on me due to illness. My home is paid off and I’m considering selling it and renting because I cannot do the maintenance and upkeep on it. My HVAC condenser is out, my water heater has gone bad, and the furnace is old. Yet people say “its PAID for!!!” Yes its paid for. But not the taxes, insurance, upkeep, paying someone to mow, replacements, repairs…that all costs money I don’t have. It can be a paid for house that falls down around my head lol. Whereas if I rent, I can take some of the money to help with expenses and invest the rest. A paid for house isn’t actually free living lol.
Neal Frankle, CFP ® says
Well said Victoria!
Neal
M. Wilson says
Currently facing foreclosure with no sale date yet. Realtors are telling me that I should do a regular sell and make a profit. Problem is, I am on temp disability that’s how this mess got started. I can file for bankruptcy chapter 13 to reestablish myself overtime, or I can sell to make a profit. I love the peace of mind that my community offers and it’s conveniently located near the college that I will attend this fall. I want sell to an inverstor and become their tenant. If I sell, I’m willing to pay the (new owner/landlord) a years worth of rent at a closing at the same rate of the current mortgage. Does that make since?
What would you do?
Neal Frankle says
I don’t understand the question. What are your alternatives? Sell or ….what? Can you afford to keep making payments? If not, you really don’t have a choice. Am I missing something?
M. Wilson says
Thanks for the reply. No, you’re not missing anything. There are many alternatives but selling is the best one. Make a profit and move on. That would be best. I guess I knew the answer the whole time but research is always wise.
Thanks again.
MariaN says
I have been thinking about this one a lot recetly; in fact I also talked to some friends in different situations. To me selling our house and renting seems attractive at the moment for the following reasons:
1. We have subtantial equity in the house (close to half a million pounds).
2. I started following our net worth – we appear to have accumulated substantial wealth but unfortunately most of it is in non-income generating real estate and land.
3. Our house is large and I am not convinced that having a bathroom each (four people) is really necessary. Then again Churchil claimed that the secret to his long marrage was having separate bathrooms.
4. I am starting to get the ‘vagabont’ urge. I start to feel restricted by possessing – renting and hiring (car, for instance) will make us more flexible and mobile. We can choose to go and live for three months in Italy.
Others with experience of renting, however, point out that they have restricted choice as to how to shape their environment and are vulnerable to the whims of the land lord.
Hard call.
Maria
Neal Frankle says
Maria, Sounds like you might be a perfect candidate to sell. At the very least, you are approaching this logically. Let us know what you decide.
Kate Kashman says
For us, it is about stability. We are in Europe right now, but under normal circumstances we have four children in outstanding public schools. The rental market in our town is extremely tight due to the schools, and the majority of the rental properties are owned by military or government employees who are transferred away and expect to come back. If we rented, we would have no control over when/if the owner would want to move back into their house, meaning an unpleasant and potentially expensive move on an unpredictable schedule.
In our situation, owning seems more sensible. I actually argue against home ownership for pretty much every reason except this one. I don’t like the idea of moving my kids around at the whim of a landlord.
mrs. Theophilus says
I would definitely not, for several reasons:
–in our market, mortgage payments are lower than rent for a decent house
–stability: I have a permanent job (as in, I could literally work here until I retire; they’d have to eliminate my department or I’d have to do something aggregious to be fired)
–control. I want to be able to decorate and landscape as I like.
–long term costs. After 15 years of renting, what do you have to show for it? After 13 years of mortgage payments, we now own our home–which includes an apartment we rent out, so we now essentially “make” money on our house (though in reality, it pays for the property taxes, insurance, utilities, upkeep–and a little profit).
Steve says
Over the very long run, owning almost always wins. (Not always; for instance back at the peak, houses were so expensive they would *never* pay back the investment, assuming normal inflation rates etc.) But that’s with certain assumptions. E.g. it’s over the very long run, which means if you plan to move any time in the near future, you’ll more likely than not just cost yourself money by buying.
A relative of mine has bought her “last house I’ll ever live in” at least twice now.
J @ Your Own Retirement says
I think for a long time people looked at a home as strictly an investment for the future. We now don’t really know what the future holds and the present does not reflect anything good.
Joe says
I think it depends on how much your home is costing you and how you live. If you use your backyard to have BBQs and play with your children, than a home is a great investment. If you’re living alone, why pay for all that extra space?
Little House says
I’m not a homeowner and have been a renter for years. There are some advantages to renting, such as flexibility. If Barbara decides to move to a different city during her retirement, she can without any strings attached. Maybe Barbara wants to travel while she’s still in her early years of retirement; what better way to do that than by not having to worry about having to take care of property. I can definitely see some advantages to renting during retirement.
krantcents says
One of my friends is thinking about renting out her home and renting an apartment. It makes sense for her since she is a widow and no children at home. Someday in the future, I may consider that.
Khaleef @ KNS Financial says
That’s a good question. Since I am not a homeowner, I guess I can answer it another way: Would I ever stop renting and take on a mortgage?
Probably not. At least not the traditional way. I can’t imagine going into debt by a few hundred thousand dollars! Unless I can find a financially favorable reason to do so, my wife and I will rent as long as we live.
Sustainable PF says
It depends where you are in life. My wife and I have an average age of 30, a manageable mortgage and a little one on the way. We see a need for more space (rooms) and wouldn’t want to have to move to a larger apartment after every child we have. Upon retirement we may sell or simply downsize. We will be mortgage free in 12 short years (we aggressively pay down the mortgage) – so before I am 50 and before Mrs. SPF is 40.
Owning works for us.