Tuesday, March 29, 2011
Lease Now, Sell Later
With the real estate market at a very low point, now is a poor time to sell a home. If you need to leave your current home, such as to relocate, leasing it may be a way to buy time, while the market recovers.
If you sell your home today, you may find, like many others, that you have no equity in the home, or may even be "upside down" where you would have to bring cash to close on the house. In that situation, you do not have equity to use for a down payment on your next house. Renting in your new location is probably a necessity.
But you may not have to sell now and take a permanent loss of equity. You can lease your current home. The rent will cover most or all of the payment on your current home, sometimes provide a little monthly cash flow. You can continue to rent it until the market moves back up, creating that equity for you again.
An interesting aspect of leasing is that expenses on the current home become tax deductions. If you do upgrades or repairs to sell your home now, those costs are entirely out of your pocket. Once you make it a rental, those costs are tax deductible. So it’s' it may be the perfect time to fix the roof, add or replace a deck, finish the basement or other projects that will add significantly to the value of the home when you do sell it. Depending on your tax bracket, you essentially get a big discount on those improvements.
This may sound great...but most families, especially if they relocate, do not want to handle leasing their previous home from far away. A rental agency and/or property manager can help. They will do all of the work to get a tenant into your house. And they can handle collecting rent, doing move-in and move-out inspections, arranging maintenance, scheduling any repairs and communicating with the tenant. Typical fees for a rental agent are less than a month's rent for a one-year lease. Property managers usually charge between 6 and 9 percent per month. Add those amounts to your monthly house payment to see what rent amount you would need to cover your costs. The rental agency can give you a good estimate on how much rent your home is likely to bring in the marketplace.
I'd like to hear your questions, thoughts or your own experiences with leasing your property.