If you’re not 100% sold on buying again or want to wait until the market cools to purchase, you may consider renting after you sell your home. This option comes with a unique set of pros and cons you’ll want to know before you commit to the transition.
We’ll help you determine if you should sell then rent with expert insight from top real estate agent Nicole Van Den Bosch, who works with 69% more single-family homes than her peers in Show Low, Arizona.
Benefits of renting after selling
For some, renting after selling can be the perfect way to avoid the mad rush to find a new place — especially if you’re in a seller’s market with low inventory and fierce buyer competition. Here are just a few reasons you might choose to rent after selling your home:
Get into your next home faster
On average, it takes about 56 days to find and close on a home, as of December 2020, according to mortgage data firm Ellie Mae. By comparison, most rental applications take about three days to turn around.
Of course, renters first have to find rentals available in their area, which can take more than three weeks, according to a Rent.com survey. Still, it’ll likely take far less time to find the perfect rental than it could to find the perfect home to purchase.
Wait for prices to cool before purchasing your next home
In a seller’s market, property prices increase as buyers compete for a limited selection of homes. That means that if you sell your house in a seller’s market for a great price, you will probably end up paying a higher price for your next home.
If you rent before buying your next home, you can give yourself time to wait for real estate prices to fall. As the real estate adage goes, money is made on the purchase, not the sale.
That said, this strategy is challenging to pull off since it’s almost impossible to predict the market’s trajectory. If the market stays in the seller’s favor, you could end up living in your rental years longer than expected, paying rent rather than building equity.
“I get that call a lot: ‘I wanna sell now, but I’m going to wait for this to crash [to buy].’ Well, first off, there’s no guarantee it’s going to crash . . . So if that’s what somebody’s banking on, I don’t think that’s going to come to reality,” Van Den Bosch comments.
Avoid making an offer with a home sale contingency
Say you find the perfect house to buy before your current house sells, and you need your home sale money to make the purchase. In this situation, you will need to include a home sale contingency in your offer on the house you want to buy that states you will purchase the property if and when your own home sells.
As you might expect, a home sale contingency significantly weakens your offer in the eyes of the seller. Unless you’re in a buyer’s market, you may struggle to secure your next home until you can remove this contingency from your offer.
Alternatively, you can sell your house and then rent in the interim so you can make a contingency-free offer on your next dream home. Of course, you’ll need to consider your lease term when planning your purchase timeline to avoid paying fees or excess rent.
Skip the cost and hassle of home repairs
While renting has its drawbacks, it also has its perks. For example, as a renter, you’re rarely responsible for repairs and updates to the home, which are often time-consuming and pricey. Of course, what your landlord will and will not repair is dependent on your lease.
Here are some common repairs that will fall on the landlord to assure the property is habitable and up to code:
- Plumbing: Water leaks, broken faucets, broken toilets,
- Heating/Cooling Systems: Broken radiators or air conditioners, depending on location
- Pests: Bed bugs, cockroaches, etc.
- Electrical Systems: Broken, faulty, or crossed wires and outlet
Take more time to explore neighborhoods for your next home
If nothing else, renting after selling buys you more time to find your next home. It’s easy to rush into a home purchase in a seller’s market when inventory is limited and end up with buyer’s remorse.
When you rent after you sell, you can take your time to decide what you want and where you want to buy while renting. You can rent in an area you’re interested in as a trial run before committing to purchasing property there.
Drawbacks of renting after selling
If you’re considering renting after selling, you need to consider the downsides, as well. Here are a few drawbacks that might prevent you from signing a rental application after your home sale:
Moving twice is stressful and expensive
If you make a pit stop to a rental before your next place, that means you’re going to have to move twice. While you might be able to put some things in storage between the moves, it’s still going to require quite a bit of work and money.
The average cost of a local move for a 2-3 bedroom home is $1,250, while the average cost of a long-distance move (over 1,000 miles) is $4,890. Even if you’re moving locally, moving twice could cost about $2,500.
Your rent goes into another owner’s pockets
The most glaring drawback of renting after selling: You won’t be building home equity. Instead of paying your mortgage, you’ll be paying rent, which you’ll never see a penny of again.
“It’s not your home, so you’re not making equity off of it. You’re basically paying somebody else’s mortgage,” Van Den Bosch says.
Of course, you will have to decide how important equity is to you and how long you feel comfortable renting.
Rent may cost as much as your former mortgage (or even more!)
In some parts of the country, rental prices may be similar to your mortgage, or even more. You can use SmartAsset’s “Rent vs. Buy” calculator to help decide if you would be paying more or less in monthly costs for renting or buying. This tool considers your yearly income, current rental rate, and the price of a home to help you decide to buy or rent.
There may be a rental shortage in your market
“Rentals here are never super easy. But it’s definitely worse now because the market is so good for sellers that a lot of people who have homes that they were using as rentals, now they’re deciding to sell them,” Van Den Bosch observes about the Show Low, Arizona market.
It’s best to speak to your real estate agent about the market in your area before you put all your eggs in the rental basket.
It’s difficult to time the market to buy low
Selling high and buying low sounds like a win-win situation, but how do you ensure you buy low? You’ll have to time the market, which is more complicated than it may seem. Even experts can only predict so much about the future of the real estate market.
“You never know what’s going to happen. Prices could continue to go up,” Van Den Bosch says. “I lived in the Denver area when things exploded years ago, and I was in that place where I kept thinking, ‘I’ll wait, I’ll wait till this goes down,’ and it never did.”
Overestimating your ability to time the market can lead to dire consequences. If prices continue to stay high, you could end up in your rental longer than expected, taking more and more rent money out of your pocket — and possibly end up paying even more for your next home if you decide you can’t wait any longer to buy.
Consult a real estate agent to weigh your options
The decision to rent or buy after selling your home is highly personal. If you’re still on the fence, consult a top real estate agent in your area. A top agent can help you understand the state of your hyperlocal real estate market and come up with the best strategy for your situation.
To get matched with an agent perfect for you, consider HomeLight’s agent matching service. We’ll crunch transaction data and client reviews to pair you with three top real estate agents in your area.
Consider renting after selling if…
- You need more time to find the perfect home.
- You want to test drive a neighborhood or city before committing to a purchase.
- You’re OK with paying rent rather than building equity for a period of time.
- You want to avoid making an offer with a home sale contingency.
- You still need to save up for the perfect home.
- You can’t find anything that suits your needs on the market right now.
Avoid renting after selling if…
- You don’t want to move twice.
- You want to build equity in another home right away.
- You live in an area with low or high-priced rental inventory.
- You care more about settling into your next home than purchasing it for the lowest possible price.
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