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Risks of the Sell My Home and Rent Strategy

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There are plenty of strategies in real estate investing. Sell my home and rent is a common one we see in uncertain economic conditions like those we are currently in. We get lots of calls from local homeowners asking if it’s a good time to cash in on their homes and simply rent. Likewise, there’s been an increase in interstate investors asking real estate agents about the future of the Fraser Coast Wide Bay property market. They are looking at rental income ROI and if they should sell or keep their investment property. In an active or hot market like the one we are currently in; it’s tempting to lock in your returns and pull out your equity. For example: if you paid  $300,000 and it’s now worth $550,000+…great! It may be viable to sell it, pay off your mortgage, and pocket the cash; rent for a couple of years and then buy again once prices go down. Sounds tempting, doesn’t it? If only it was that simple and guaranteed to be profitable— the reality is the Sell & Rent Strategy is not without risk and anyone considering it should go in with eyes wide open.

Not Knowing Where the Market Will Go.

Hervey Bay’s real estate market may go up, it may go down, or it may even stay the same. Last year, Australia was tipped into recession due to the pandemic as lockdown measures were imposed across the country. Although our economy continues to rebound, current economists can’t predict what’s going to happen. While prices may drop, they may also go up. The risk? You may price yourself out of the Hervey Bay market because the market crash you were counting on did not happen.

Very Difficult to Time the Market.

Timing the market and knowing precisely when it is a good time to buy property has always been difficult. It’s easy in hindsight to see the highs and lows after they’ve occurred, but nobody has a crystal ball to guarantee accurate marketplace predictions. If it were that simple; we’d all be wealthy millionaires.

It’s Expensive to Buy and Sell.

If you factor in the costs associated with selling and buying real estate like stamp duty, legal fees, and real estate commission; you may not end up with as much cash in your pocket as you initially anticipated. Obviously, if you are lucky and snap up a bargain; it’s money well spent! (Related: How Much Does it Cost to Sell?)

Mortgage Penalty Costs.

If you are locked into a mortgage and choose to rent rather than buy another property straight away, some hefty fees will be payable to break the mortgage. You may be able to transfer your mortgage to another property, but if renting in the interim, you may have to pay thousands of dollars in penalties. Make sure that you are aware of any mortgage penalty costs before deciding to list your home for sale.

Will You Still Qualify for a Mortgage?

With so many moving pieces in the real estate puzzle, mortgage brokers, banks, and other lenders constantly change their approval processes. Could selling and then renting for a year or more jeopardise your mortgage options when you need to reapply for one? Be sure to get good financial advice.

Where Will Interest Rates Be When You Decide to Get Back into the Property Market?

Interest rates are currently at an all-time low and who knows where they will be in just a year or two? Sure, you may save money now but higher interest rates or less cash flow in the future may also end up costing you in the end.

Where Else Will That Money Work for You?

We know that different parts of the economy have been impacted by a pandemic-fuelled recession. And it is clear that the stock market isn’t the most reliably safe investment option at this time; so exactly where would you put the equity that you pull out of your home?

Your Money Grows Tax-Free in Your Primary Residence

You can make money tax-free through owning your and living in your primary residence. By selling your home and pulling out the equity and investing it; you will have to pay taxes on any gains. But if you choose to leave the money in your home, the amount will grow tax-free (so long as prices keep going up). There is an old saying in the real estate industry— the best time to buy a house was five years ago; the second-best time is today. The sell my home and rent strategy is not the best option in property investment, although it is tempting. Most people who have built wealth through real estate have done so with the traditional buy and hold strategy. Although there may be some bumps along the way, long-term investing is usually a solid strategy.

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1 thought on “Risks of the Sell My Home and Rent Strategy

  1. SmartBox

    “Your Money Grows Tax-Free in Your Primary Residence” I absolutely agree most especially on this part. Thanks for sharing these valuable tips Dianne! I look forward on learning more about property brokerage on your blog! Cheers!

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