Q: I have been unemployed for about 6 months and have just secured a job in another city. I will reach retirement age in about 6 or 7 years. I will most likely not retire in the new city I will be relocating.
Should I try to sell my current home and purchase a home in the new city? Or should I rent my current home and then rent something in a new city? My home does need some work (new roof and painting etc). My home is worth about $200,000 and I owe about $75,000.
I contacted a RealtorA Realtor is a designation given to a real estate agent or broker who is a member of the National Association of Realtors. and she said her firm charges one month’s rent to set things up and 7 percent per month to look after the rental property.
What do you recommend and what are the pros and cons?
It may be easier for you to move on than pay a real estateReal Estate is land and anything permanently attached to it, such as buildings and improvements. agentAn Agent is an individual who acts on behalf of a consumer. A real estate agent represents a buyer or a seller in the purchase or sale of a home. Licensed by the state, a real estate agent must work for a broker or a brokerage firm. An insurance agent helps a consumer purchase an insurance policy. Insurance agents are also licensed by the state.A Real Estate Agent is an individual licensed by the state, who acts on behalf of the seller or buyer. For his or her services, the agent receives a commission, which is usually expressed as a percentage of the sales price of a home and is split with his or her real estate firm. A real estate agent must either be a real estate broker or work for one. to lease the property, especially if you know you need to fix things up before you can rent it, and then hire someone to go in after each tenant leaves to thoroughly clean and repair the property. On top of all that, you have to pay an additional monthly expense to have someone manage the property.
Let’s do the math: If you rent the home for the next three to five years and have a new renter each year, you’ll have to pay one months’ rent to the real estate agent for each year and another 7 percent of the rent you collect in fees. You will also have to pay for the expense to maintain the property. (Don’t forget that there will be some months where the property is vacant, but you’ll still have to pay management fees.)
Add those basic costs up and compare that number with the amount you might get from the home now. If you find that you can get a fair price for the sale of the home now and don’t expect to get much more in 3 to 5 years, you might be better off selling.
Why choose to rent? If this is your dream home, and you know you want to retire to the property in a few years, then by all means, you could rent it and maintain it over the next few years.
The problem with that plan is that lot can change over three or even six to seven years. If you’re not living in your house, you may not realize the neighborhood has taken a turn for the worse, for example, until it’s too late and your property value has fallen. Or, something could happen to the property and the expense of maintaining the home goes above and beyond what you expected to incur, never mind that your real estate taxes might skyrocket depending on where you live. At that pointA Point is one percent of a loan amount., it may be too late to salvage your investment.
In some states, if you rent your property your real estate taxes rise as the home is no longer considered an owner-occupied property. Instead, it is taxes more like an investment property.
Let’s assume you can sell your home fairly quickly. You’ll now have some cash in the bank.
If you decide to buy something else, you might want to look at a foreclosureForeclosure is the legal action taken to extinguish a home owner's right and interestInterest is money charged for the use of borrowed funds. Usually expressed as an interest rate, it is the percentage of the total loan charged annually for the use of the funds. in a property, so that the property can be sold in a foreclosure sale to satisfy a debt. or a bank-owned home in a great neighborhood that you can fix up and build in value. A great school district will hold its value even in the worst of times (or fall less than other neighborhoods), and should rejuvenate more quickly as families discover they can trade up to neighborhoods and school districts that were previously out of reach.
If you’re not in the fixer-upper/foreclosure mode, then I’d suggest simply banking your profits (which should be tax free as long as they’re not above $250,000 if you’re single and $500,000 if you’re married), and finding an inexpensive place to rent.
If you decide to stay more than 7 years, you can always buy a year or two from now. But having the cash on hand will give you the freedom and flexibility to move as the mood strikes you.