Should You Keep Your Old Home? The Financial Case for Selling vs. Renting

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Welcome to NerdWallet's Smart Money Podcast, where you send us your money questions and we answer them with the help of our genius nerds.

I'm Sean Piles.

We're back and answering your money questions to help you make smarter financial decisions.

This episode, we're joined by a listener, David, who's planning a big cross-country move with his family and has many questions about the financial and logistical challenges of moving, including whether they should sell or rent out their current home after they move.

David, welcome to Smart Money.

Hi, Sean.

So to help me tackle your questions, David, I am joined by NerdWallet writer Lisa Green, who has experience managing rental properties and moving and all sorts of things that you are wondering about.

So Lisa, hey, welcome to Smart Money 2.

Hey, Sean.

Hi, David.

So, David, before we get into the conversation, I want to remind you that everything we're about to discuss is just for educational and entertainment purposes.

We are not here to give you specific financial or investing advice, but instead provide you with information so that you can make your own smarter financial decisions.

Sound good?

Sounds great.

Perfect.

Let's start by digging into your financial life generally.

Like, how do you and your wife manage your household finances?

How are you feeling about things financially?

Yeah, we manage a lot of things in a unique way.

I do feel like that's something different about us is that we've never merged our finances.

I take care of the mortgage.

She takes care of utilities.

And we both kind of have our own separate accounts, which I do feel like might complicate the cross-country move logistics.

Do you end up Venmoing each other or finding some way to send cash back and forth when you're covering expenses?

I'm proud that we do not Venmo Venmo or Zelle each other.

I know there are some couples that do, but no, we're not at that level.

But we've kind of just always had the, you take care of this, I take care of that.

We both in general feel that that's a fair way to do it.

And what about your income levels?

Because I know with some couples, if one person is earning more than another, they might cover certain things and the person who's earning less might cover less.

How does that break down for you guys?

I think we're both making about the same amount.

I might make maybe 10 or 20% more.

But again, we've always done it the way that we do it.

And I've not felt the need to bring up or cause a major change as we prepare for what could be a cross-country move.

Right.

Yeah.

And we'll get into that in just a second here.

But I'm wondering also, how do you feel like you're doing financially?

Do you think things are going well?

Do you think there are areas where things could be better?

We're doing very well.

I feel very fortunate to have the means to plan for a move like this and just feel like I have options.

I feel like I should start this conversation by just acknowledging that I'm coming at this from a point of privilege, even being able to have this conversation and access funds from different accounts.

And also, family is available to help us out if needed.

Well, it seems like you also worked hard to get to where you are, too.

So you should be proud of that.

Thank you.

Let's get into your move.

You and your wife are thinking of moving with your kids.

Where do you want to move and what's motivating this?

Yeah, we live in a Western state and I grew up in a Midwestern state.

So we're highly considering moving back that way to be closer to family.

The state that we currently live in is just one that I never thought would be be the best to raise children.

Growing up in the Midwest and just seeing how people interact with their neighbors, the weather and the climate is something that I also feel like is better.

I live in a desert state and I want to move back to one with four seasons is nice.

And again, just the biggest reason was just to be closer to family and a place for my children to know that this is where they're growing up and going to graduate from high school.

Yeah, and I assume you have some family out there too.

Correct.

That can make things easier.

So how do you expect moving to change your finances?

Do you think it'll make things easier?

Might it actually make things more difficult?

I do think 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.

To me, the biggest things with finances is hoping to get a similar salary in the new state, but also just not taking a huge hit in terms of moving costs.

When I start to do the basic research about what it will cost to physically move a house of our size with all of our items and two small children, the numbers can be alarming.

But I remind myself that millions of people have done this, but it's just something that's a little scary to start.

But you haven't done it, so it's new to you and your wife.

Correct.

I want to talk a little bit about your jobs because that's a big thing to line up when you're moving to a new place.

Make sure you have an income coming in.

Have you looked into jobs in your potential new home?

How has that gone so far?

I think I'm comfortable sharing that I am a high school teacher.

I have spoken to a couple schools in the area we're considering moving to.

I have had an interview that I'm still waiting to hear back about if that will be a possibility.

My wife is a journalist and she has a potential job lined up that she could transfer within the same company.

So we're both optimistic that a somewhat easy transition could happen with similar income levels, maybe adjusted for cost of living.

David, can you think of any financial reasons to not move just to stay where you are?

Or are you really set on this lifestyle change?

The biggest one that comes to mind is just that I feel very fortunate to be well respected at my current school.

Just the other day, an administrator approached me already asking about plans for next year.

I kind of had to delay and stall what I even said to that question.

So I do think that my current school would notice and acknowledge my loss if I were to decide to leave.

So it's more the personal reasons that might be hard, saying bye to your colleagues and to your current community.

Yeah.

And just again, just uprooting the place that I've lived for nearly 20 years to move back to the place where I grew up.

But again, it's really just thinking about being close to family.

I have two small children, both in elementary school.

And I just think to myself, where do I want them to graduate high school?

Right.

And that kind of move would only get harder as they get older.

Correct.

I was in the same school district from when I was second grade till I graduated.

And I feel like that's powerful to just know that this is where I'm growing up.

This is where I'm going to graduate from high school.

Well, I think I have grilled you enough, David.

Let's get to some of your questions for Lisa and me around the move.

What concerns do you have?

Where do you want a little bit more information?

The biggest one is just what should we do with our current home?

We are homeowners.

We've got about 10 years until the house will be paid off.

The biggest question, again, is just renting versus selling.

Our current mortgage is about $2,200 per month.

A website like Zillow estimates that we could rent it out for $3,000.

What are the key factors we should consider specifically related to being cross-country landlords with little to no property management experience?

Well, Lisa, I'll let you take that.

Yeah, David, I think that's a great question.

I have several rental homes myself, including a couple that I used to live in.

And in my experience, you know, keeping a home, a previous residence as a rental property has been a really strong investment.

You continue benefiting from house values appreciating.

And your rents will also typically go up over time while your mortgage payment stays the same.

So meanwhile, while you're enjoying this nice cash flow from your property, tax laws let you depreciate the property, which means that even while you've got positive cash flow, money coming in, you may show a loss on paper that can save money on your taxes.

And if you ever want to go back to your previous area to visit, check on your property while you're there, and now you have a tax write-off for the travel because you had to travel back.

to check on your property.

10 years from now when your house is paid off, most or all of that $2,200 monthly mortgage payment will go away and that turns into an income stream for you.

So I would definitely look at trying to hang on to the house and try renting it.

So that all sounds pretty cushy and nice, but I imagine it's not all easy.

Money coming in as you are managing a rental, especially when you're living in a different state.

What do you think David should keep in mind to ensure that if they do go this route, that everything is properly maintained and they're getting their rent on time and they're not on the hook for a mortgage several states away, perhaps, while having a new mortgage.

There are some caveats to renting out your house.

Tenants don't take care of a property typically the way you would take care of your own property.

And being halfway across the country, it's a little bit hard to keep an eye on it.

And vacancies are expensive because you'll lose your rental income.

at the same time that you have to shoulder expenses for maintenance and repairs between tenants.

So you need a cash cushion.

And most of all, I think that you need a property manager, a good property manager.

When we were first getting started with rental properties, we managed them ourselves, screened the tenants ourselves, dealt with the phone calls ourselves about something being broken.

And then we finally hired a property manager and we have not really had to deal with those kinds of issues at all.

The property manager will typically charge about 10% of the rental income.

And for that, they will find and screen your tenants.

They will collect your rents.

They'll handle the maintenance, keep records, and send you money every month.

I think that this is especially important for a long-distance rental because you don't want to get a call in the middle of the night about a clogged toilet 2,000 miles away.

The property manager will be equipped to handle things like that.

We're back in a moment with more questions and answers.

Stay with us.

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Lisa, one thing I'm thinking about is savings.

It strikes me that you or anyone, you know, David, anyone who's looking to have a rental property in another state or even in the state that they are in, would probably want to have more in savings to cover a month where maybe they don't have a tenant or there is some sort of maintenance that needs to be done to the property.

How have you thought about this with your own rental properties?

Absolutely.

It's good to have a cash cushion.

Another option is to kind of tap into the equity in the property that you already own.

When we were first getting started, one of the first things that we did was set up a home equity line of credit on the house that we lived in.

That gave us a way to get money if we needed it when something broke or we had a vacancy.

If you want to go that route, I would suggest you may want to get that home equity line of credit set up on the house that you're currently in while you're still living in it.

It's going to be easier and you'll get better terms as an owner-occupant to get that home equity line of credit set up.

And then typically you can just continue to keep it even after you move out of the house.

That's what we do.

So David, how is this sounding to you?

Feasible, difficult, stressful?

Yeah, I'm glad she mentioned that recommending a property manager.

I will admit that I'm not the most handy homeowner myself.

So having to deal with the middle of the night phone call 2,000 miles away, that obviously is something that would be a challenge in itself.

So I was strongly considering the property management option.

And again, Lisa, I think if we do go that route, that may be a strong consideration.

Our properties, our rental properties are not out of state, but they are probably over an hour from where we live.

And since we've had a property manager in place, we really essentially have not had to drive that hour and go up there at all.

It's been a life changer.

And David, you're planning on buying a new home when you move.

Is that correct?

I think that is the long-term goal.

Yes, we did consider possibly renting, or we're fortunate to have family who would take us in for the first weeks or probably even a month or two if needed.

But yeah, one of my other biggest questions was just how to access funds for a down payment for a new home.

I do feel fortunate that I do have a good amount of money saved across different account types, a Roth IRA, taxable investments, a 403B, and cryptocurrencies.

But if 50 to, let's just say 50,000 to 150,000 or more down payment was needed, I was just curious, what should we consider in terms of tax implications, withdrawing strategies, or just selecting which of those accounts to draw from?

I currently don't have a large liquid down payment available.

But with a couple months' notice, I'm just curious, Lisa, your advice for where I could access a large down payment if needed.

I can touch on the tax part quickly.

One thing to note around Roth IRAs is that you can take your contributions out, but you'll likely have a pretty sizable tax bill on earnings.

And in general, withdrawing funds from a retirement account is likely to leave you with a tax bill and potentially penalties too.

If you need to sell investments, look into your taxable brokerage account because that is probably going to be the most tax advantaged way to do it.

If you've held the investments for longer than a year, you'll be taxed at a favorable long-term capital gains rate, which is lower than your income tax rate, rate, most likely.

So that might be the best way to go potentially if you need to sell investments.

I'm wondering how you personally have thought out which option might be best for you.

Have you maybe put together some sort of nerdy spreadsheet where you're listing each option and what it might cost you in terms of taxes or interest rate, any of those things?

I do have the nerdy spreadsheet, but no, I have not taken the next step to really see the tax implications or exactly where I want to draw this money from.

I just want to minimize the tax bill from potentially tapping into these accounts that in theory are for long-term growth.

But this is obviously a major life change.

And I know that having access to this is definitely a time to use it.

And I think running those numbers will provide you a lot of clarity.

So I would say add some meat to that spreadsheet, see what the bottom line is for each option.

And David, how are you thinking about timing here too?

Are you planning to move in the next few months?

Are you planning to put your house maybe up for rent soon?

How are you considering that?

As a teacher, the goal is to obviously finish out the school year, which for me here would be the end of May.

I wouldn't need to, for my job, I would have a nice about two months, June and July, to get out there.

But I just think the logistics of the move are also the most daunting.

It's just, should we hire professional movers, use a service like Pods or U-Haul, or we also consider just selling a lot of our belongings and starting fresh?

I did get a quote from a few of these options, but I'm just curious if anyone else on the call has an idea for where should we start in terms of physically getting a, it's a four or five bedroom house with two small children 2,000 miles away.

Think about what you do and don't need at your current home.

And also whether it would just be more expensive to haul it to a new place versus getting rid of it and maybe buying something in your new location.

Lisa, how have you handled that with your various moves?

I can share share a story from my sister's situation.

She lived in one state and had just bought a new house and furnished the new house in that state when she got a grandchild in another state and decided to move to be near that baby.

So since she had just purchased all of this new furniture, of course, she thought the thing to do would be to take it with her.

And that turned out to be not perhaps exactly her best move.

She hauled all of that furniture down there and then it didn't fit the vibe of the house.

It didn't fit the vibe of the new state, which was coastal rather than inland.

It just didn't work.

She ended up having to get rid of the furniture down there and get new furniture.

You got to match the furniture to the vibe of where your house is.

Otherwise, the feng shui is off.

Exactly.

The table just won't fit in that corner here, you know.

David, how have you thought about that with your wife?

Have you had discussions of like, okay, like we really don't want to have to move this sectional 2,000 miles?

Have you even gotten that far yet?

No, not gotten that far.

I don't know if it comes across on the call, but feng shui is not in my vocabulary.

That is not something that I think about.

My wife, definitely, I could see her once we find a place to live, realizing that, yeah, the couch or a large piece of furniture just doesn't fit.

So, this is helpful feedback.

I do think there's maybe an argument to sell and start fresh once we see what we need.

Really, just bringing the basics, I feel like, would really make this a lot easier.

that's something that i want to emphasize too is how can you make this move easier for you because you and your wife will be moving 2 000 miles you said with two young kids there are going to be all sorts of logistics to figure out around like snack time and bathroom breaks and where all of your stuff is in the car and how do you load up the car that i think to the extent that you can take steps to make that process easier for you, you will appreciate it afterward and especially while you're doing it.

Have you also looked into the cost of like movers or using pods or U-Hauls?

Have you mapped out what those expenses might be too?

I did reach out to pods.

I did get a quote from them for one of their largest containers.

I haven't looked into U-Hauls or professional movers yet, but I feel like the Pods or the U-Haul option is going to be the least expensive.

So yes, I have started that process, but again, just taking that next step is daunting.

I'll toss out one more thought on your furnishings as well.

You have a fully furnished home that you are thinking of renting out.

There are opportunities to rent it out with the furnishings in it.

I think this is a bit of a niche, but there are short-term rentals for travelers, for traveling nurses, for vacationers, et cetera.

It may not be suitable for your location, but it's certainly something you could think of.

I hadn't considered that.

That's great advice, Lisa.

Thank you.

Yeah, that would obviously make it way easier if we didn't have to sell anything and can maybe just charge a little bit extra giving them a fully furnished house.

And the depreciation on the furniture in the home could potentially be a tax write-off, too.

So David, I know we've run through a lot of different aspects of moving and selling and renting and managing a rental property.

How are you thinking about all of this right now?

Yeah, at this point, it's really just waiting to see if the job offer I'm looking for ends up coming through from the state we're looking to move to.

So that's really where we're at.

The timing as a school teacher, this is where we're entering kind of the time of the year when staff starts letting administrators know whether or not they plan to return.

So I'm kind of just playing the waiting game right now to see if this works out.

But I know if it does, we're going to have to be frantically planning the move.

So I really appreciate this advice.

Well, we're happy to talk about it with you.

And I hope it's a little bit of solace that, you know, there are steps that you can take now to plan for your move and try to make it as easy as possible.

But at a certain point, every move has a certain level of chaos.

And there's not a lot you can do about that.

I'm prepared for the chaos.

Well, thank you so much for coming on and chatting with us about your situation.

I hope it was helpful.

Very helpful.

I'm a huge fan.

Thank you so much for having me.

And Lisa, thank you for also coming on and sharing your insights.

Yes.

Thank you for having me, Sean.

And that's all we have for this episode.

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