Buying or Selling a Home/Sell or hold on
My question is that my husband and I own our home in Chester Massachusetts and we would like to move out of Chester and buy another home. Is it a smart idea to buy a second home while the Interest is low and hold on to our house in Chester until the market goes up?
I get asked this question a lot by all sorts of folks. The answer depends on several factors.
1) Reason for moving
2) Financial means/ cash flow
3) Desire to be a landlord/capability to be a landlord
4) Long-term financial plans
I'll go over each, briefly.
1) Some reasons for moving are more important than others. Single parent trying to get closer to the Ex? Trying to take care of a elderly parent? Job Change? Some reasons may mean you should, even if the "math" says you shouldn't.
2) Financial means: Can you afford to buy another house? If you rent your existing house, what would the "cash flow" be? Estimate what you can get for rent. Subtract $100/month becuase you're being too optimistic, and then compare that number with your monthly payment (included taxes and fees). Most people are left with a NEGATIVE number, meaning they are paying cash to have someone else live in their house. This is generally frowned on professional investors, but it all comes down to section #1. Ideally, you'll have a cash flow of no less than $300/month, and 500/month or more is ideal, to handle expenses, water bills, vacancy, tenant placement, court costs and the like. At $300/month, you'll be (truly) breaking even, but since you're saving money through the principle payment on your mortgage, you are saving a lot.
3) Some people don't want to deal with tenants, and the conflict that can arise with them. If you don't have the stones to take someone to court and throw them out on the street because they can't pay the rent, think twice about this. Renting to a family member? That's an even worse idea. Being a landlord is a business, and you need to think that way. If you made signs for a living, and someone didn't pay you for the signs they ordered, would you deliver them? No. Would you make more for them? No. Same here.
4) Holding on to property for the long-term can be a good investment strategy. But you need to know the tax laws and they are more complicated than the ones you're used to and it makes sense to do it as part of an overall financial strategy. For many, renting out that first property is the first step to financial freedom. However, too many people go to the school of hard knocks while they are doing it, when there are plenty of books and real estate agents who are happy to put you on the right path from the get-go.