does it makes sense to move from home ownership to renting?

[proudmamanow]

Here's the thing. We have a lovely, very affordable home in a very pleasant area. We have great neighbours, and it's a safe, peaceful place. Plus a low mortgage, and we were able to put about 50% down when we bought this house. I feel good about the decision we made to move here two years ago and I am so grateful for what we have.


But...we do not like the long drive to get us anywhere, the reliance on the car, and the distance from family. Also the schools aren't great--though we are homeschooling for now, but we may not always want to do that & it would be good to have a real choice.

We are considering moving to the big city...higher cost of living, not as quiet, safe etc. But much closer to family, different & more job opportunities, lots of friends & good public transit. We would not realistically be able to afford to buy a house in a decent area. But we could rent or join a rental housing co-op in a decent area, without too much trouble.

Is this crazy? What do we do with the equity from our house...how do we invest it in case we are ready to sell again? Would we take a huge tax hit if we sold? Is this just a bad idea, lol? We would be prioritizing choosing a nice, safe, child-friendly place to live in the context of a bigger, busier city...

obviously this is more than just a financial decision, but this is really to ask about the financial aspects. Does it ever make sense to move from home ownership to renting?

[brittneyscott]

Well as far as the tax hit from selling the house when we sold property I was told by our accountant that as long as the sale price was at or below the appraisal value it wasn't claimed as income so therefore no tax impact. If we sold for more than the appraisal value it would be considered investment income and the additional over the appraisal value would be counted as income and liable to taxes.

For everything else that is mostly personal preference. A few things to consider though... would you have a good school district in the city as a backup option to homeschooling compared to where you are? What are the homeschool laws there if not (if in a different area/state)? Would you have to change jobs, be able to find new jobs, make enough to cover the higher COL? How much would the rent cost compared to your mortgage? Would you be stuck renting forever or could you possibly buy later? How long would that take and how much would it cost?

[jeteaa]

can you keep the house and rent it out? would you consider living there after you raise your family?

[MeepyCat]

There's a fairly large tax exemption on gains from the sale of your primary residence, so unless you think you could sell the house at a gain of more than $500,000 (I'm assuming a joint return), the sale doesn't have federal tax implications and does not need to be reported on your return. (See http://www.irs.gov/businesses/small/...=98921,00.html for details.)

For some people, it does make sense to move from ownership to renting. And being closer to friends and family can save you money, particularly if you're able to cut back from one vehicle to two, or if you can make non-financial agreements with these people for things like childcare.

[karne]

I wouldn't give up a lovely, affordable home with decent equity in order to rent. Just my opinion for what I would do, but I just wouldn't give it up.

[cristina47454]

We went from owning to renting, and there is part of me that really regrets it. Of course, in our situation, it was the best decision we could have made (we were moving to a new state, where we weren't familiar with any of the neighborhoods and weren't sure if it was going to be a permanent move) Since then, dh has had employment trauma and it's a relief not to be responsible for home repairs/maintenance. But the equity from our house is long gone and I sometimes wonder how we'll ever manage to be homeowners again

[StarJune]

Originally Posted by karne

I wouldn't give up a lovely, affordable home with decent equity in order to rent. Just my opinion for what I would do, but I just wouldn't give it up.

I agree. Unless there was a pressing reason, I would not move to renting.

[PenelopeJune]

We did this. Well, we didn't have much of a choice because we lost our home, but now we rent. We are much happier.

But in your case, it doesn't seem to make much sense. Your home is affordable and in a nice area. You guys are happy there. I wouldn't uproot (at this point in time) without solid reasons for doing so. Rental prices are slightly down, but not by much. And your house value is probably way down. Financially it doesn't seem smart.

[Sharlla]

we bought a house aid outright. it was a 45 min drive from work, family and friends. i hated it. when i left dx i let him keep the house since it still needed major renovations. of course he didnt want to live out there so gave the house to his parents. in our situation it wouldnt have cost much more to rent since gas at the time was costing me $300 and i could rent a small house in the city for $350
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[Sharlla]

my new dh and bought a house 6 months later our new mortgage is $272 which is $100 less than what our rent was.
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[lilyka]

It would depend on how much equity you actually have in your house and how much you could sell it for. you have paid a good deal on your home. you may or may not get all of it back. I tried to sell my home recently. despite being a third of the way through the mortgage and having made several major improvements (like adding an entire third floor) I still would have had to bring almost $10,000!!! to closing. if they paid their half of the closing costs. No one even looked at it though. (It is on a coner lot and NO ONE wants coner lots up here. I will admit, no corner lot was the #1 thing on my list when I was looking for a new house) I cannot even refinance this house ( I need to for legal reasons) because despite having paid off so much of my loan according to the appraisal I have negative equity sucky.

So check with a realestate dealer before getting your hopes up.

but if you can get out with at least a small profit I would totally do it. I think home ownership is not the dream everyone makes it out to be. I would be caustious though about signing up for something with a much higher cost of living.

[mnnice]

While I see nothing wrong in general with going back to renting. I wouldn't want go back to renting unless you had already secured employement and sold your current house.

It's unlikely that you are going to pay capital gains tax if you sell your house. But if you use a realator to sell your house the typically get 6% commission.

[marimara]

We did. Here's why. We too, had significant equity in our home. We used this a place to "park" our money after we sold our last house because the stock market was crashing at the time. Also, at the time we bought it we thought we would want to stay there for a long long time. That turned out to not be the case and we wanted our equity out for fear that we would never get it back again since the housing market was crashing too. It was a now or never feeling. Like either we sell now and get most of our $ back or wait and pretty much watch it disappear. So we sold this spring for a small loss and are now renting. We have our $ in the bank, temporarily, until we can make a decision about where to put it next. There are some predictors predicting the housing market to fall possibly 50% or more further. We couldn't risk it and bailed. We are now free and clear and can move whenever we get new orders (military). Which we are hoping come any day now.

As long as you don't meet the capital gains tax as pps mentioned you won't pay tax. You will most likely pay a realtor though and some small repairs after the home inspection.

All that being said, you will mostly likely take a loss on the house, meaning you'll sell it for less than you paid unless you are in a lucky area. If you can break even or make any profit at all, consider yourself lucky. If you think you will want to move w/in the next 5 years, if your market is still active than now might be your last chance.

[Bokonon]

We bought our house in 2002, sold in 2007, and have been renting ever since. I probably wouldn't do the same in your situation, but we were happy to get out of our house before the value dropped drastically (our town was really affected by the bubble bursting). We've been very happy renting - we can afford to rent a nicer home in a better school district more than we could afford to buy a small one in a worse school district, so it has worked for us.

We paid off our student loans and car payments with the proceeds from our house sale, and still have some left over.

I think in your situation, renting out your current house sounds like a good option while you see if city life is really what you want.

[K1329]

It might be an option if you have the means (and willpower) to invest/set aside any equity you take with you. Then you can purchase a home again when you're ready to settle on a location or see a deal. For us, owning a home has been one of our biggest long term investments. In the long run, at the end of the mortgage, we will have something to show for it (we've sold one house so far and moved the equity into another). I worry that if we were renting we wouldn't be investing as much of our money.

[proudmamanow]

Just coming back to this thread with a bit of an update.
So....we are moving towards moving to the city...we have job interviews lined up next week....we can afford to buy, but would really be scraping by. Renting would allow us to be debt free and let us live in a more desirable location in this new city. But, like many of you mentioned, I'm worried about how we would manage the equity to get good returns and so that we can get back into the real estate market when we wish to do so...

I should add that I'm in Canada so the housing situation is quite different here. I am confident we could sell at a slight profit even after only 2 years, but we are likely looking at a housing price slow down in the next 6-12 months.

For those who suggest renting out our current place....this is an interesting idea and maybe one to consider further. hmmmm

[CarrieMF]

Renting would allow us to be debt free and let us live in a more desirable location in this new city.

Have you checked out the cost of renting yet? Are you looking to rent a house, apartment or condo? Here renting is still just as much as buying a house, not the newer houses but still a decent house that's older if you don't mind an older house. The higher cost of living could mean you're paying more for renting than you are your mortgage.

I should add that I'm in Canada so the housing situation is quite different here. I am confident we could sell at a slight profit even after only 2 years, but we are likely looking at a housing price slow down in the next 6-12 months.

depends on where you live. I'm on the border of Alberta & Saskatchewan. Prices went up this year & are slated to go up again in the spring.

Interst rates are rising right now too. they will most likely be even higher when you go to buy again in a couple of years.

Being only 2 years into a mortgage talk to your bank about the fees you'll have to pay. Even though you put 50% down, you'll lose the most selling less than 3 years after purchasing.

IF you do sell I'd put $10,000 ($5000 for you & $5000 for DH) into TSFA's. The rest I'd talk to a financial planner. The interest rate on TSFA's isn't that high, but you aren't paying tax on them either.

Renting your place gives you an out should the city not work out.

I feel good about the decision we made to move here two years ago

what were the reasons you chose to move there 2 years ago? How often do you get into the city & what are the most common reasons you go to the city.

how far from the city do you live?