Time to Downsize? Consider the Pros and Cons of Selling or Renting

When it's time to downsize your home, the decision to sell can be a painful one. But renting it out to strangers can be equally daunting. That's why Belong has developed a 'middle ground' for downsizers who are facing the 'sell or hold' dilemma.

There are plenty of reasons for hanging on to a beloved home, even if it no longer suits your lifestyle. Perhaps you want to see your own kids (or grandkids) live there someday. Maybe you want to travel for a year or two while you decide. Perhaps you want to move to a smaller place, but don’t want to sell the house because property values in the neighborhood are going up, and you want to maximize your potential profit.

There are many options you have at this point in your life. But if you want to keep the house, the biggest challenge you will face is finding the right person to live in it.

Pros and cons of selling your home

Many homeowners choose to sell their current home when it’s time for them to downsize. Often, they’ve lived in their current home for years or decades, and built a considerable amount of equity in the property. But selling your home may not be the best option if you want to prioritize ongoing cash flow, bequeath the property to a relative, or simply hold the home for sentimental reasons. 

Pros of selling your home

• Cash out on the equity you’ve built in your home. Selling your home, especially one you’ve lived in for more than 2 years, can result in a large amount of cash immediately becoming available to you. 

• Reduce property maintenance time and costs. When you sell your home in order to purchase or rent a smaller property, you immediately reduce the amount of yard work, maintenance, and general property management required. 

Cons of selling your home 

• Market conditions can make returns uncertain. Realtor.com predicts that 2023 will be a “nobody’s market,” where inventory increases but prices remain high. You may wish to downsize during a period when market conditions are not favorable to sellers, and if that’s the case, holding on to your property may be a better option. 

• Capital gains taxes may cut into profits. It’s easy to forget Uncle Sam’s portion of your equity gains may be larger than you thought. Capital gains taxes can be as high as 37% in some cases, so be sure to consider this when choosing whether to sell or hold your home. 

Pros and cons of vacation rentals

Since 2008, with the dawn of AirBnB and the growing popularity of renting vacation homes for shorter time periods, many homeowners have chosen to move out of their home and turn it into a vacation rental rather than sell it. This is appealing for homeowners that want to continue letting their equity grow, while also covering their mortgage payments and even earning additional income. Vacation rentals aren’t passive income, however, and complaints with short-term rental companies have been in the news throughout 2022. 

Pros of turning your home into a vacation rental

• Earn regular extra income. Nightly rates for vacation properties often exceed the average nightly price of long-term rentals, and several bookings a month can often comfortably cover your mortgage and earn you extra income. 

• Deduct many expenses. Because your vacation rental is considered a business, you can deduct related expenses such as cleaning and marketing costs. 

Cons of turning your home into a vacation rental

• Property damage is more likely to occur. A common complaint among vacation property owners is the vacationers themselves. It only takes one unauthorized party or rowdy group of guests to inflict a lot of damage to your home, and the recourse may not be enough to cover the damages.

• Market fluctuations impact the ROI significantly. Vacation rentals are highly impacted by the overall economy and travel trends. And right now, the trend is downward. While the highs of vacation rental ownership are certainly high, the lows can be especially painful if you’re not prepared. 

• Changing regulations may interrupt your business. Many cities are banning or significantly limiting short-term rentals, citing concerns with housing availability. These regulations may not be in your city currently, but they are spreading across the country and represent a risk to consider. 

• Marketing, cleaning, and customer service required. The income from short-term rentals is far from passive. In most cases, you’ll be directly responsible for communicating with guests, arranging cleaning and maintenance services, and generally keeping the business running. If you’re downsizing in order to live a simpler life, a vacation rental is not a great option. 

Pros and cons of renting your home long-term

The third (and we’d argue best) option for homeowners that want to downsize their living space is to list their home as a long-term rental. Long term rental properties earn owners steady, predictable, and sometimes even guaranteed income when working with a partner like Belong. Unlike vacation rentals, long-term rentals offer stability to both homeowner and resident, and finding a qualified partner to manage the property day-to-day is much easier. 

Pros of turning your home into a rental

• Passive (sometimes guaranteed) income. Long-term rentals, when managed by a qualified partner like Belong, can result in truly passive income. Special programs may even guarantee your rental income, even if tenants pay late or the property has a period of vacancy. 

• Long-term leases mean less fluctuation (and less stress). Longer-term residents mean shorter-term vacancies and a more consistent experience for homeowners and residents alike. 

• Better care is taken of the property. Residents that live in (and love!) your property full-time are more likely to care for your home as if it is their own. And high-quality property management partners like Belong will ensure maintenance problems are addressed immediately, keeping your property well-taken care of without you needing to lift a finger. 

Cons of turning your home into a rental

• Equity isn’t liquid. If you need to access your equity in cash, perhaps in order to purchase your next home outright, selling may be a better option for you. 

• Less access to the property during the lease term. Residents have strongly-protected rights to privacy, so if you want to visit the property frequently or even stay there on occasion, a short-term rental situation may be better for you. 

How Belong is making life easier for downsizers

Downsizers love Belong because we put great residents in their home, keeping it well loved and well maintained, helping the home appreciate while you’re not in it. And if you do decide its time to sell, the management fees that Belong collects could get credited to offset some of the commission earned from the sale of the house. We call that a win-win! 

Belong is not a property management company, but a residential network offering unique services to both homeowners and their residents. From not charging fees for the essentials to guaranteeing rent, Belong will partner with you to achieve financial freedom. And you'll never need to lift a finger. 

Learn more and find out if your home is eligible at belong.com/homeowners.