Should I Stay or Should I Go Now?
“Timing the Market” is a catch phrase commonly used by savvy real estate analysts, investors, and agents. Its what every seller and buyer strives to do: hit the market at the optimal time where the opportunity couldn’t be any better to get in or get out. In reality, guessing right once is a 50/50 proposition. The real estate market throughout the South Bay’s Beach Cities continues to ring in historic sales prices for local real estate making it very tempting for some to just capitalize on the current market conditions then make a move later. But the million dollar question is, once one sells, where does one go? If leaving the area is not an option, is it worth it to rent? Is it time to sell and rent? Let’s look at some pros and cons . . .
Pros for Selling and Renting Well, the financial windfall is the obvious positive for selling now, with the state of the market as it is. While there may be a myriad of reasons why your property wouldn’t get top dollar in another market, in the current environment, many of those so-called negatives about your house can be dismissed. In a more “typical” market, negatives such as B- locations, smaller lots, and the need for updating can heavily affect buyer reaction to a property. A huge positive of our current market condition is that selling today gives you the ability to attract buyers that normally would have more “issue” with the negatives. Low inventory also means quick sales. Another positive for selling now is that homes are selling FAST. Some have been lucky enough to not even have to deal with several open houses, looky-loos, or scheduled showings, which many say can be the most stressful part about the selling process. In many cases a buyer may need to sell his/her house before buying their upleg, but current market conditions are seeing buyers’ homes selling quickly once on the market. This means there is less risk for houses sold with the contingency of the sale of the buyer’s current home.
On the Plus Side of Renting First of all, you can wait to buy, take your time, and possibly see the market settle a bit. Thereafter, you will be in the best position to purchase a home quickly because you have your finances ready to go. Having those finances ready to go also helps you appear as the stronger buyer if and when you enter a bidding war. Renting is also a way to test the waters. You can try out different areas of the South Bay and see what neighborhood best fits you and your family. Plus, it can be a nice break from home maintenance issues. In most cases the landlord takes care of landscaping, appliances that may fail, property insurance and the like. The landlord definitely takes care of the property taxes! Here’s an entertaining read on one ex-homeowner’s experience of renting vs. buying.
The Cost of Renting vs. Holding Let’s look at a very simplified example. Let’s say you purchased your current home for $1 million, and you are entertaining an offer from a buyer who is willing to pay you $2 million today. Let’s then assume you can walk away with $1 million. If you can then rent a home for $7,000 a month for one year that amounts to $84,000; in comparison, you would have paid $36,000 in mortgage payments on your home for that same year. You are looking at spending possibly $48,000 of your $1 million in gains to rent leaving you with plenty to spend on a down payment down the line. Of course this is a VERY simplified scenario . . . but $1 million in profit from your home gives you a lot of options in the long run. Try this engaging set of calculators set up to help you determine if renting or buying is a better option for you right now.
The Other Side of Selling Then Renting The process of selling your home can be daunting. It can be hard to predict if it’s the right thing for you and your family. First, are you ready to give up this property that has become your home? There may be a lot of emotional attachment to a home. You may be settled, like your neighborhood, and all your furniture fits. Second, you may be really comfortable with the mortgage payment and/or tax base you currently have, which, in many cases, is less than some rents in this area. Third, you have children that you would like to have stay in a specific school district or zone that is based on where you live. There is no guarantee that you will find a suitable rental in the same school district, and many landlords do not accept pets; those that do may charge hefty pet deposits. These are all negatives that somewhat play on your emotions; nevertheless they are very real things to consider. What about the market? Will it really ever settle down? Will you be able to “get back in” and find another home to buy at some point? Again this is hard to predict. What we do know is that mortgage rates will likely go up in the future, and as a natural consequence, home prices should balance out. The real estate market is notorious for being cyclical, and therefore, there should always be a dip in home prices, however statistics are not absolutes, so there is always risk to consider. Reader’s Digest published 5 Hidden Costs of Renting which is a good, quick read on the subject. Timing always comes down to what is right for you, and that timing could be very different for you, your neighbors or your friends. The best way to go through these pros and cons is with a professional. Ask us to evaluate your home and help you to weigh all the positives and negatives of selling and renting.