Many folks, especially Baby Boomers, are at the point of considering downsizing from their current homes. It may be a case of an empty nest, and their current home is just too big for them. For others, especially in this economic climate, it’s because they simply want to reduce their monthly expense, or to make use of the equity they have in the home. Whatever the reasons, once you’ve come to that decision there are several ways to go about it.
The most common way that people accomplish this is simply by selling their current home and buying a smaller/less expensive one. I’ve heard from several people that they’re concerned about doing this now, given the state of the real estate market. They are afraid they would be giving away equity by selling at a time when the market is not at a high point. In fact, some consider renting out their home, and then buying or renting a smaller one. That scenario may work for some folks, especially if they’re unsure about really being ready to downsize. It’s a way to give yourself a downsizing trial run.
For most people, if you are considering selling and buying in the same market, it’s basically a wash, in terms of equity. Although you may not get as much for your house as you may at another time, you will be able to purchase another home for less than you could at another time. This may not hold true if you are moving to a different city or even a different area of town, depending on the status of that particular market. For instance, here in Atlanta, if you’re selling a home in the suburbs or selling a condo, two markets that are a bit behind in the recovery process, and wanting to buy a home in town, where inventory is low and prices are going up, it may make sense to rent out your home for a while until the market improves. It’s really important to do your homework on the buying end before you consider selling your home. You cannot wisely uncouple the two potential transactions.
There are factors other than financial to consider in choosing the path that works best for you. One thing I have found, both from personal experience, and with my clients over 25 years, is that renting out your personal home can be a traumatic and difficult experience. It’s very different from renting out a piece of property that you bought as an investment. Most folks have an emotional attachment to their home, and are understandably concerned about how a potential tenant may treat the home. This is a valid concern, not just emotionally, but financially as well. No matter how well you screen tenants, they may not keep up the home the way that you would, and, depending on the wear and tear, you may have to spend money to get it back into shape after they move.
Another important factor to consider is your tax liability in any given scenario. It’s a good idea to consult your accountant to see how a potential move may impact your particular situation. Most of all, make sure to contact a local Realtor to help you with this decision. He or she can give you an accurate picture of the current market and market trends, for both rental and sales.
There are a lot of things to consider, and it’s imperative that you have all the facts before you make that decision.