It used to be that you saved up until you had enough for a down payment on a nice starter home. Then you would live in said starter home until you built up some decent equity and your home’s value increased. Then you might sell that starter home and upgrade to your forever home, which you would remain in the rest of your days.
But these days, there are far more options to consider. Renting, renovations, income properties, mortgage payment options… all can influence what used to seem like a linear process.
I recently had a couple come to me with one question: should we sell our home?
They are in their 50s, with three grown children. They have lived in their current home for fifteen years. It was close to their kid’s school, the rink, and everything else the town had to offer. It was perfect for that phase in their lives.
Now, though, with the kids grown and gone, they have discovered a love for cooking and entertaining. The kitchen that was great for making pizzas with their kids and whipping up pancakes on weekend mornings lacks the features of a true chef’s kitchen. The layout is awkward for hosting larger groups. There is no area for a wet bar to craft cocktails (another new hobby!)
They wanted to know if they should sell their current home to purchase a home with the amenities they wanted.
But I am not a real estate professional. So why did they come to me with this question?
Because the real question they were asking is: how will the real estate choice we make affect our overall financial plan?
So we looked at options:
- Sell their current home and purchase a new home
- Keep their current home and renovate it
- Keep their current home, turn it into a rental property AND buy a new home
- Keep their current home and prepay their mortgage aggressively to build equity faster
The first two options are the most typical.
But the option that made the most sense for them was to turn their current home into a rental property.
With the healthy difference between their mortgage rate and what tenants in their area were paying for rent, they would end up with a nice source of income. Their healthy savings could cover any maintenance issues on their current home and leave them with a decent start on another down payment. With the equity in their current home and that down payment, they could easily manage the purchase of a new home.
We mapped out exactly how this decision would impact their overall financial plan. Simply bringing in extra income from the rental was great – but investing that income and then re-investing the gains would have a snowball effect that would significantly speed up the achievement of some of their other goals.
What seemed like a risky and atypical choice turned into a very obvious win when they saw the positive impact on their other financial goals.
I put them in touch with a Real Estate agent contact of mine to help them list and vet potential tenants, and find their next home. They move in three months!
A Certified Financial Planner® (like me!) can make you aware of options you may not have considered – options that can help you achieve your financial goals while allowing you to live the life you want. Book a call today!