Tuesday, September 30, 2014

Have to Sell your Home? You might consider renting it out, first.

There are a lot of complicated issues that led to the last decade’s housing crisis, none of which need to be rehashed again, since they’ve been gone over in every form of media. Still, that leaves behind a very select group of folks in a very precarious situation. Ordinary homeowners have seen the value of their homes plummet, have to sell their home and move, and are faced with the possibility of losing ten or more years worth of equity that had been built up. Where once they might have sold their home and moved in order to accept a better job, they find themselves stuck in a defined geographic area, sometimes with no prospect for better employment. Further, if they do decide to short sell, these homeowners will usually find their credit damaged for years to come. 

Now, let’s say that the average homeowner we’re talking about has gotten a job offer on the other side of the country, but may not be able to accept the better paying job because their home has lost so much value. Rather than just avoiding paying your mortgage and foreclosing all together, this homeowner should look at all their options, and then make the choice that’s right for them. 

Option one is to simply not sell your property. While this might seem the obvious solution, it isn’t always a perfect solution. In fact, it may be nothing more than a stopgap measure. You might be asking how it could possibly work, when faced with the prospect of a move to another area, but believe me, it can be done. For instance, one alternative to selling in this scenario would be to rent out your property. 

Let’s go over just a few of the issues you’ll be likely to face quickly then. First, you’ll probably want to hire a management company, and that can take a sizable chunk out of the rent you would charge. Additionally, you really can’t charge for rent more than the market rate in your area, so you aren’t going to get rich off this venture. If the house next door is the same size and rents for $1000 per month, you can’t charge $1500 and expect to see any takers who end up being long-term tenants. You’ll just have to consider the cost/benefit tradeoff and price your home accordingly, even if it means taking a small loss every month. At the very least, it’ll set you up for minimizing the amount you’re paying into a property you aren’t living in, freeing up capital to buy a house near where you’ll be working.

Clearly, you’ll have to deal with tenants, and all that they entail. While the management company can ease this, you’re likely still to have your nerves jangled a bit by the idea of someone other than you walking across your carpet or hardwood floors every day. Proper upkeep is likely to suffer, and for obvious reasons, you’ll be liable for maintenance on the property. Be aware of it, and plan for it.


The single greatest benefit to avoiding short selling by renting out is that you’ll maintain much more of your investment’s value than you would should you short sell, and much more if you find yourself faced with a foreclosure. In either of these cases, provided the market will bear your home being used as a rental, and your HOA does not have specific covenants preventing it, you will have a vastly better outcome than you would with less desirable options that some homeowners are forced into by circumstances these days.

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