Should I Sell my House and Rent?

So, you open your mail and find a letter from a Real Estate Agent. If you just let them list your house, she is sure it’s worth at least 1 million dollars. Five years ago, you paid $335,000 for it. What a chance to cash in.

Let’s pretend for a minute that the agent knows what she is talking about. It's doubtful, but let’s say she does.

Should you sell your house?

It’s not an investment, so rather than look at the price of other homes sold in the neighbourhood or the cost of building your home from scratch, let’s look at the only thing that matters.

What will it cost you to live in a different house?

To rent or buy another?

It doesn’t make sense to sell your home and move to another in your neighbourhood. It does if you move to a place where you can buy a home for significantly less than you can get for your current one. Most people won’t do that, but it’s a simple math calculation if you want to.

Money received for Current Home – Money Paid for New Home = Tax-Free Profit.

It works if you are willing to move. Call it random luck because that’s what it is. Take the money and run.

But if you are emotionally tied to your community, then your only choice if you sell your home for 1 million dollars is to rent.

Suppose you are left with $950,000 when you sell your home. Your mortgage of $300,000 means you receive $650,000 on closing. You were paying $20,000 for interest mortgage payments and an extra $10,000 in costs to live in your home. You will no longer have to pay those costs.

You find a home to rent in your neighbourhood for $2,500 per month plus utilities of $500/month. You will be paying $36,000 a year for rent.

You take the $650,000 from your home sale and invest that in a government bond paying you 5%. You receive $32,500 in interest income. Sounds good, but you realize that taxes are due on that gain, bringing your profit down to $21,000. On your previous mortgage of $300,000, you were paying $1,500 per month. You don’t have to pay that anymore and don’t have to pay the extra $10,000 in costs to keep up your house. Here’s the math.

Cost to rent $36,000 -$21,000 investment income - $18,000 no longer paying in mortgage - $10,000 no longer paying in carrying costs =$13,000 in gain if renting instead of continuing to own your home.

I would probably not sell my personal residence and go through this exercise at the age of 67. It doesn’t make sense to do that. On the other hand, if working from home at the age of 55, I would do the deal and move to a part of Canada where housing is much cheaper, say the East Coast. What would you do?

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