The decision to sell your home vs. rent it out is ‘complicated,’ experts say — what to know

Many Americans are sitting on low-interest-rate mortgages and could face a decision when it is time to move: sell or rent out their existing property.

That choice could be tricky, especially for those eager to buy another home.

Roughly 6 in 10 existing fixed-rate U.S. mortgage holders had an interest rate below 4% during the fourth quarter of 2023, according to the latest figures from the Federal Housing Finance Agency. By comparison, the average 30-year fixed-rate mortgage was around 7% in May.

However, renting out your old home while buying another “gets very, very complicated, which is why most people don’t do it,” said Keith Gumbinger, vice president of mortgage website HSH.

Homeownership has become increasingly unaffordable amid higher interest rates and soaring home values. That makes qualifying for a second mortgage harder, especially without tapping equity from your original property, Gumbinger said.

The typical down payment for first-time homebuyers was 8% in 2023, compared to 19% for repeat buyers, based on transactions from July 2022 to June 2023, according to a survey from the National Association of Realtors.

Plus, if you are using rental income to qualify for the second mortgage, lenders typically only consider 75% of your proceeds, Gumbinger said.

Renting out your home isn’t ‘easy money’

You also need to consider whether you have the time or desire to manage a rental property, said certified financial planner Kashif Ahmed, president of American Private Wealth in Bedford, Massachusetts.

“Be careful about wanting to be a landlord,” he said. “It’s not the panacea you think it is.”

Ahmed, who owns rental property in Austin, Texas, warned that some first-time landlords do not consider the costs of ongoing maintenance, lower rents or vacancies, among other expenses.

Plus, you will typically pay about 25% more for insurance as a landlord compared to your standard homeowners policy, according to the Insurance Information Institute.

“It’s not easy money” after factoring in the stress and added costs, Ahmed said.

The capital gains tax break is a ‘huge factor’

If your original home has significant equity, you will also need to consider the capital gains exemption for primary residences.

Married couples filing together can earn up to $500,000 on the sale without owing capital gains taxes and single filers can make $250,000.

But there are strict IRS rules to qualify.

Renting your home starts the clock for the “residence test,” which says the home must be your primary residence for 24 months of the five years before the sale. The 24 months do not need to be consecutive.

“It’s a huge factor,” said CFP David Flores Wilson, managing partner at Sincerus Advisory in New York. “Those numbers go into projections.”

Of course, the choice to sell your first home or rent it out ultimately hinges on your financial plan, and cash flow changes can affect retirement and other goals, he said.

Read more at CNBC.com

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If there is a home that you would like more information about, if you are considering selling a property, or if you have questions about the housing market in your neighborhood, please reach out. We’re here to help.

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Flood of evictions expected to hit Oklahoma

Oklahoma City could see thousands lose their homes in coming months due to record unemployment and economic turmoil caused by the COVID-19 pandemic.

Attorneys and academics told The Oklahoman a moratorium on eviction hearings, once ended, will be followed by a wave of evictions creating a homeless population not seen since the Great Depression.

Court records reviewed by The Oklahoman show the number of filings over the past two weeks has slowed — but that trend won't continue after the pandemic, warns Richard Klinge, director of the Pro Bono Eviction Assistance Program at Oklahoma City University. The state’s unemployment rate hit record levels within weeks of the outbreak, with first-time claims on unemployment insurance up by nearly 800%.

Nearly 100,000 Oklahomans, more than the entire population of Edmond, filed initial claims in the past two weeks.

“I don’t see how these people are going to be able to pay their bills,” Kinge said. “It’s a tsunami coming on the horizon as people can’t pay their rent.”

The Pro Bono Eviction Assistance Program under Klinge has helped 650 families — more than 1,300 men, women and children — facing eviction and other landlord issues since the organization was started in 2018. That is only a fraction of total evictions the state could see this year alone.“Before COVID-19 struck, based on filings to date in Oklahoma County, 14,000 cases would be set for Oklahoma County in 2020,” Klinge said. “That means more than 30,000 men, women and children will be facing eviction from their homes.

“Now, given the COVID-19 situation and the resulting massive unemployment, the numbers throughout Oklahoma will grow exponentially,” Klinge said.

Normal eviction processes have been disrupted, slowed or stopped altogether as a result of the coronavirus. The CARES Act passed by Congress put a 120-day moratorium on evictions for property owners with federal funding used for mortgages, financing or rent assistance. On March 16, the Oklahoma State Supreme Court “strongly urged” courts to stop hearing non-emergency cases, including evictions, and doubled down on that message March 27.

About the same time, Oklahoma County Sheriff P.D. Taylor put a stop to enforcing eviction orders.But landlords continue filing evictions, creating a backlog of cases to be attended to later.

“We could be potentially seeing thousands of evictions happening and being executed all at the same time,” Gentzler said. “Either all of those thousands will show up at court and it will be a public safety disaster having everyone in court filing evictions or it will be equally disastrous if they don’t show.”

Brigid Kenedy, an attorney who represents landlords including Aspen Place and Yes Companies, isn’t convinced a flood of eviction filings by landlords will hit courts when they reopen. She said landlords must balance the situation at hand with how to stay in business.“They’re doing everything they can to work with tenants,” Kennedy said. “They don’t want to lose them. "It doesn’t serve anyone’s interest.”

Keep reading on the Oklahoman.

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Is there financial relief for renters in Oklahoma?

Is there financial relief for renters in Oklahoma?

Many apartment renters who fall ill, can't work, lose their job or can't pay their rent for some other reason related to the new coronavirus got a reprieve Monday in the same moment as some landlords, according to the Oklahoman.

The Federal Housing Finance Agency said Fannie Mae and Freddie Mac will offer mortgage forbearance to multi-family property owners on the condition they do not evict renters unable to pay because of the COVID-19 pandemic.

About half of apartment properties financed here the past two years were through the two government-sponsored enterprises, broker Mike Buhl said.

"The eviction suspensions are in place for the entire duration of time that a property owner remains in forbearance," the FHFA said in a press release. "The forbearance is available to all multifamily properties with (a Fannie- or Freddie-backed) performing multifamily mortgage negatively affected by the coronavirus national emergency."

FHFA Director Mark Calabria said, “Renters should not have to worry about being evicted from their home, and property owners should not have to worry about losing their building, due to the coronavirus. The multifamily forbearance and eviction suspension offered ... should bring peace of mind to millions of families during this uncertain and difficult time."

Fannie and Freddie "are working with mortgage servicers to ensure that these programs are implemented immediately so that property owners and renters experiencing hardship because of the coronavirus can get the assistance they need," Calabria said.

Local landlords who worked with the government-sponsored enterprises, as well as their renters, will be relieved to hear it, said Buhl, owner and managing broker of Commercial Realty Resources Co., based in Norman. Buhl specializes in apartment sales and tracks the multifamily market.

"We have heard from several owners that have expressed concern," Buhl said just before the offer of loan forbearance was announced. "I suspect most owners are aware of the potential of having to postpone rent for those most affected by this crisis. At this point, though, it doesn’t appear that every tenant is going to just stop paying rent.

Landlords Can Now Sniff Out Fake Assistance Animal Requests

Property owners have struggled with how to enforce no-pet policies on their properties with the growing number of renter requests for assistance animals.

That’s why the housing market is welcoming the U.S. Department of Housing and Urban Development’s newly released guidance and clarity on how to comply with the Fair Housing Act when receiving a request for an assistance animal.

News reports in recent years have grown accusing some renters of using dubious third parties over the internet to buy certifications or registrations that say they need an emotional support animal.

Under HUD’s new guidelines, landlords and property managers now can require reliable verification of the tenant’s need for an assistance animal and can require documents other than an online certification.

A person with a disability may require the assistance of an animal to help do work, perform tasks, or provide therapeutic emotional support. The requested accommodation must be met if it affects that person’s major life activity and serves as a reasonable request. HUD’s new guidance offers housing providers step-by-step practices for complying with the Fair Housing Act when such requests are made. It includes guidance on assessing accommodating requests and information needed from the applicant about their disability-related need for the accommodation.

“This law exists to protect millions of Americans with disabilities who rely on the support of their assistance animals—like those living with depression, military veterans suffering from PTSD, and countless other deserving individuals,” says Vince Malta, president of the National Association of REALTORS®. “But as NAR has stressed to HUD over recent months, these protections are jeopardized when a small minority seeks to exploit weaknesses in the system.”

NAR welcomed HUD’s new guidelines for moving to stop fraudulent use of assistance animals while protecting the rights of those who require one.

HUD’s guidance offers landlords a tool to navigate requests and ensure that reasonable accommodations are provided while complying with fair housing laws. The guidance also includes information on the type of animals that are usually appropriate as well as best practices for when the requested animal is not a typical one used in accommodation situations.

“Countless Americans rely on assistance animals to fill a void, providing individuals with disabilities with the means to have a home that supports their quality of life,” says HUD Secretary Ben Carson. “In my many discussions with housing providers and residents impacted by the need for assistance, I recognized the necessity for further clarity regarding support animals to provide peace of mind to individuals with disabilities while also taking into account the concerns of housing providers. The announcement responds to the ambiguity surrounding proper documentation for assistance animals with clarity and compassion to provide an equal opportunity for a person living with a disability to use and enjoy their home.”

Read the notice from HUD.

Need Help Affording Rent in Denver? A Roommate Could be the Answer

It's no secret that the Bay Area is expensive, but if you live alone there, it's really going to cost you.

That's the resounding message from a recent report released by fintech data company SmartAsset that analyzed the top cities across the country where renters reap the biggest savings by doubling up with a roommate. And for the fifth-straight year, San Francisco has topped the national report of U.S. cities with the highest roommate savings.

According to the data, the average one-bedroom apartment in San Francisco costs $3,361 per month compared to $4,529 for the average two-bedroom — which translates to savings of $1,096 for residents who choose to share an apartment and split rent down the middle.

In Denver, the average one-bedroom apartment costs $1,447 per month compared to $1,831 for the average two-bedroom, or savings of $531 for roommates who split rent equally. Denver ranks at No. 17 for roommate savings.

For its list criteria, SmartAsset looked at apartment data from April 2018 to April 2019 from Rent Jungle on the 50 largest U.S. cities and measured how much a person could save in each city by moving from a one-bedroom apartment to a two-bedroom. There's a wide range in savings across the report as the amount per month saved by having a roommate in San Francisco is roughly $500 more than the average saved across all cities and almost $900 more than the amount saved in the last city on the list, Detroit.

The Department of Housing and Urban Development defines those who pay more than 30 percent of their income on rent as housing cost-burdened. As rising rents continue to outpace increases in median incomes in most cities, rooming up with someone else is one of the most effective ways to decrease the amount of income spent on rent.

To read more about the benefits of having a roommate, go to The Denver Business Journal.

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