Looking to downsize but can’t sell your house just yet? Try playing landlord-tenant. here’s how to have your house and rent it, too

2012-12-22T00:00:00Z Looking to downsize but can’t sell your house just yet? Try playing landlord-tenant. here’s how to have your house and rent it, tooBy Erik J. Martin CTW Features nwitimes.com
December 22, 2012 12:00 am  • 

Many empty nesters and other homeowners who yearn for a smaller footprint (and less upkeep) choose to sell their homes and downsize to smaller purchased properties.

But in the current real estate market, it can be difficult to sell a house at the preferred price, so some experts recommend a different strategy: Rent out your house and move into a more manageably sized rental residence.

“Many empty nesters are downsizing their homes and moving to smaller homes with less maintenance. The advantages of renting your current home is that it provides a revenue stream for cash-heavy empty nesters,” says Logan Waller, president, Waller Group Properties, Dallas.

This is an especially shrewd tactic for those who aren’t likely to qualify for a new mortgage loan on the smaller home they see, those who don’t have any equity in their property or those whose homes are underwater. It helps if the homeowner can charge a higher monthly rent than their monthly mortgage payment.

“If you owe more on [your home] than current market value, then it would be a good decision to rent out in order to move forward with downsizing,” Susan Stynes, real estate agent with Long and Foster, Midlothian, Va., says.

Going rental on both properties also eliminates the worry of holding two mortgages.

Additionally, this strategy gives homeowners more time to save for a down payment for a future home purchase, particularly if they’re not sure what and where they want to buy next.

“If a consumer is uncertain about where they want to live or the type of property they desire, there is nothing wrong with renting for a while. In boom times, people bought and sold property like shoes, but today, unwinding a bad decision in real estate can be expensive,” says Amy Tierce, regional vice president at Fairway Independent Mortgage in Needham, Mass.

However, if homeowners could financially swing both mortgages, “I would recommend purchasing the new smaller space instead of renting a space,” Stynes says. “Interest rates are at an all-time low and prices are still very good. You’re risking higher prices and higher interest rates if you choose to rent now and purchase later.”

One disadvantage to any of these scenarios is the uncertainty of being a landlord.

“The risk is that maybe the rent won’t cover as much as you need to cover, and you can have non-paying tenants and damage to the home,” says T.J. Rubin, managing broker, Fulton Grace Realty, Chicago. “But all of this can be mitigated by hiring a property management company.”

Bill Golden, agent with RE/MAX Metro Atlanta Cityside, says it can also be emotionally difficult to trust a beloved abode to tenants.

“To rent out a home you have lived in, loved and put a lot of yourself into can be difficult,” Golden says. “And, depending on the wear and tear involved, you may have to spend money to get it back into shape after [tenants] move.”

For these and other reasons, it’s crucial to talk with a few professionals before becoming a landlord as well as a renter.

Golden suggests consulting a local real estate agent to understand the trends. If larger homes are not rentable and smaller ones are in high demand, then “you may want to reconsider your plan. Financially, I would also consult your accountant to see how that may affect you tax-wise,” Golden says.

Conducting adequate research on the local rental rates is important, too.

“Determine if you have to rent your property before you can afford to take on a new property, then develop your strategy,” Tierce says. “Correctly priced, a consumer should be able to rent their home and find a new rental in a 30-day time frame, but this depends on their particular market.”

Copyright 2014 nwitimes.com. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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