NerdWallet's Smart Money Podcast: "Should You Keep Your Old Home? The Financial Case for Selling vs. Renting"

In this insightful episode of NerdWallet's Smart Money Podcast, hosts Sean Pyles and Lisa Green delve into the financial and logistical considerations of selling versus renting out a current home when planning a significant cross-country move. The episode features a listener, David, who is contemplating relocating his family and seeks expert advice on managing his existing property from afar.

Introduction to David’s Situation

David and his wife are preparing for a major move from a western state to a Midwestern one, primarily to be closer to family and provide a stable environment for their children. They currently own a home with about ten years left on the mortgage and are evaluating whether to sell it or rent it out.

• Motivation for Moving:
  • Closer proximity to family.
  • Desire for a community-oriented environment with four seasons.
  • Ensuring children grow up and graduate high school in the Midwest.

Sean Pyles remarks at [03:45]:
"You have family out there which can make things easier."

Managing Household Finances

David and his wife manage their finances separately, with David handling the mortgage and his wife covering utilities. This arrangement has worked well for them but raises concerns about complicating the logistics of an interstate move.

• Financial Management:
  • Separate accounts for different expenses.
  • Both partners earn roughly the same income, with David earning slightly more.

David states at [01:58]:
"We both kind of have our own separate accounts, which I do feel like might complicate the cross country move logistics."

Financial Implications of Moving

David anticipates a 5-10% decrease in the cost of living in the new state but is wary of the substantial moving costs associated with relocating a family across 2,000 miles. He expresses confidence in maintaining similar income levels through his profession as a high school teacher and his wife’s potential job transfer.

• Cost of Living:
  • Expected reduction in living expenses by 5-10%.
  • Concern about moving expenses and securing new employment without significant income loss.

David shares at [04:26]:
"The cost of living in the state we're looking at is about 5 to 10% less than the state we're currently living in."

Selling vs. Renting the Current Home

The crux of David’s dilemma revolves around whether to sell his current home or rent it out. With a current mortgage of approximately $2,200 per month and potential rental income estimated at $3,000, the decision holds significant financial implications.

• Advantages of Renting:
  • Continued appreciation in property value.
  • Potential for increasing rental income over time.
  • Tax benefits through property depreciation and travel write-offs.
  • Creation of a long-term income stream once the mortgage is paid off.

Lisa Green advises at [07:24]:
"Keeping your home as a rental property has been a really strong investment... when your house is paid off, that turns into an income stream for you."

• Challenges of Renting:
  • Risk of tenant-related property damage.
  • Potential vacancies leading to loss of rental income.
  • Necessity of a reliable property manager, especially when managing remotely.

Lisa Green cautions at [09:03]:
"Tenants don't take care of a property typically the way you would... you need a property manager, a good property manager."

Managing Rental Properties from Afar

Given the distance, David and his wife have limited experience in property management, raising concerns about maintaining the property and ensuring consistent rental income.

• Recommendations:
  • Hiring a Property Manager: Essential for handling tenant issues, maintenance, and rent collection.
  • Financial Buffer: Maintain a cash reserve to cover vacancies and unexpected repairs.
  • Home Equity Line of Credit (HELOC): Consider setting up a HELOC on the current home to access funds if needed.

Lisa Green suggests at [11:58]:
"Setting up a home equity line of credit on the house you live in... then you can just continue to keep it even after you move out."

Planning the Physical Move

David is evaluating the logistical aspects of moving, including transporting belongings versus starting fresh in the new location. He has received quotes from moving services like PODS and is considering the most cost-effective and efficient method for his family's move.

• Options Considered:
  • Professional Movers vs. Self-Service Options: Assessing costs and convenience.
  • Decluttering: Selling or donating items to reduce moving load and costs.
  • Furnishing New Home: Avoiding the expense and hassle of transporting large furniture pieces.

David reflects at [16:42]:
"Having to deal with the middle of the night phone call 2,000 miles away... I was strongly considering the property management option."

Lisa Green shares a cautionary tale at [16:58]:
"She hauled all of that furniture down there and then it didn't fit the vibe of the house... she ended up having to get rid of the furniture and get new furniture."

Accessing Funds for a New Home

As David plans to purchase a new home, he is exploring various financial avenues to secure a substantial down payment. His options include utilizing savings from different accounts like a Roth IRA, taxable investments, a 403B, and cryptocurrencies.

• Financial Strategies:
  • Tax Implications: Withdrawing from retirement accounts may incur taxes and penalties.
  • Investment Sales: Selling long-term investments in taxable accounts might offer favorable capital gains rates.
  • Strategic Planning: Creating a detailed spreadsheet to evaluate the cost and benefits of each withdrawal option.

Sean Pyles advises at [14:25]:
"With a Roth IRA, you can take your contributions out, but you'll likely have a pretty sizable tax bill on earnings."

Final Thoughts and Next Steps

David is currently awaiting confirmation on a job offer in the new state, which will significantly influence the timing and planning of his move. The hosts emphasize the importance of thorough preparation and having contingency plans to manage the inherent chaos of relocating a family across the country.

Sean Pyles concludes at [20:37]:
"We hope it was helpful... every move has a certain level of chaos, and there's not a lot you can do."

Key Takeaways

1. Renting vs. Selling: Renting out your current home can provide ongoing financial benefits but requires effective management, especially from a distance. Hiring a property manager is crucial for remote landlords.

2. Financial Planning: Assess all financial accounts and understand the tax implications of accessing funds for a new home. Developing a detailed financial plan can aid in making informed decisions.

3. Logistical Planning: Evaluate the cost and practicality of moving services versus purchasing new furnishings. Decluttering before the move can reduce costs and simplify the relocation process.

4. Timing and Job Security: Securing employment in the new location is essential to ensure a smooth transition and maintain financial stability during the move.

5. Emotional Considerations: Beyond finances, personal reasons such as community ties and family proximity play a significant role in the decision to relocate.

For listeners facing similar decisions, this episode provides a comprehensive overview of the financial and practical aspects of selling versus renting a home when planning a significant move. By weighing the benefits and challenges, and seeking expert advice, you can make informed choices that align with your long-term financial goals and personal circumstances.