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Why Renting Your Home vs. Selling may be the Right Move

Since national home prices have fallen 35% since their peak on 6/30/06 (Source: Bloomberg), it may not be a great time to sell your home. This can be a dilemma for many growing families who are seeking to upsize to a larger residence. One potential solution is renting your home instead of selling it. This alternative generally did not make financial sense for homeowners over the past decade, but now is attractive in many instances.

Here’s why: Currently, rent prices are high relative to monthly mortgage payments and the demand for rentals remains stronger than the demand to buy homes. From 1990 to 2005, the expenses of monthly mortgage payments and monthly rent payments grew in tandem at a consistent pace until residential home prices took off.* Then, the median monthly mortgage payment, based on a 30-year loan with the prevailing average fixed rate of 6.36%, grew to $1,004/month on 06/30/07.* Median rental payments did not accelerate as sharply but rather continued their steady growth with the median rent equaling $665/month during that same time period.* The disparity between the two was one of many signs of the housing bubble.

Today, the trend has reversed and median monthly rent payments are $721/month as of 3/31/12.* Median monthly mortgage payments have dropped to $506/month due to the precipitous decline in housing prices and mortgage rates.* In order to potentially take advantage of this pricing discrepancy, one would buy a new home at the currently lower prices and generate rental income on the existing home.

Certainly, there may be obstacles to implementing this strategy for some. Typically, homeowners cash out equity from their current home to use as a down payment on their new home. In this scenario, they will need to have other resources to make the down payments. They will also need to obtain financing for the new home under lending standards that have stiffened. And finally, the real estate rental market demand can vary significantly depending on location. That being said, in a difficult environment, all options should be considered. If you or a family member is dealing with a similar situation, please reach out to your Wealth Manager to help analyze the situation.

*Source: J.P. Morgan Asset Management

 

Important Disclosure Information

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request. This article is not a substitute for personalized advice from RegentAtlantic. This information is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

Important disclosure information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.

This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.

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