“Should I sell my house and rent?” This question has been coming up a lot more frequently in recent years. Now this is interesting because it is not the traditional way of thinking, you know, the way the Baby Boomers think. I felt like the expectations from my parents were to do as they did, buy a house as soon as you can, get into a amortized mortgage because then your payments were set for the next 30 years and after that, you will have the house paid off, you retire and collect social security and ride off into the sunset.
Well, things have changed and so have mindsets. People like Robert Kiyosaki and his Rich Dad Poor Dad books and educational systems have had a big impact on how the younger generations, myself included, are viewing Assets and Liabilities. As such, the question comes up for homeowners, does it make sense to sell my house, and start renting.
So let’s keep this simple. I would say selling and renting should be considered if, 1) you plan on using the equity to invest in income generating assets. What those income generating assets are is for another discussion, but just for example real estate or the stock/bond markets. And 2) that you have the discipline to execute that plan whole-heartedly and not be tempted on splurging it on non-necessities.
If you are planning to burning the equity for material items, luxury cars, clothing, jewelry, items that aren’t going to be generating income, then I would advise against selling. Keep in mind that this statement is barring any extenuating circumstances, such as terminal illness, or the funds being necessary for a specific and special use. I’m also assuming you’ve built a material amount of equity in your home so far. If you’re going to try this sell and rent strategy you need to be able to find and invest in assets that will be making money either through cash flow or appreciation in the long run and you need to be able to not lose focus and execute this strategy. If you can’t do both of these things successfully, then you are probably better off keeping your current place or upsizing or downsizing depending on your situation. That way the equity you’ve been able to build up in your residence will continue to grow. I know a lot of people whose homes ended up being their main investment either because they weren’t savers to begin with, or they were willing to sacrifice things to buy the house that they lived in. Point being, owning your home can be a wealth generator. It may not be optimal, however it’s safer than trying the “non-traditional” strategy and be left with nothing at the end of the day.
I have to admit, a great benefit of selling then renting is that you may be able to live in a home that you would not have been able to afford if you bought. And although you may think you are throwing away all that money to rent, as long as your equity that was in your old house is outperforming your rent expense in the long run, you’re coming out ahead.
So if you are asking yourself, “Should I sell my house and rent?” then hopefully you are thinking holistically about your assets including the asset you are living in, and considering how they are performing for you. This strategy may work for you if you can successfully execute your investment plan. Word of caution, make sure all stakeholders are on board whole heartedly with this plan. You may be all-in on this plan but if your spouse has other plans, this strategy will be doomed from the start. I hope this was helpful. If you’re an investor and are thinking of selling your investment property, check out my other blog post, “Is Now a Good Time to Sell a House?”
