IS YOUR DEBT TO INCOME RATIO LOW ENOUGH TO SUPPORT THE LOAN FOR THE CURRENT MORTGAGE, A NEW MORTGAGE, AND ALL OF YOUR OTHER DEBT?

Lenders use your debt-to-income (DTI) ratio to compare your income versus your total debt with the mortgage to determine whether you'll qualify for a mortgage loan. The size of your down payment and your credit score and also factor into whether you will qualify for the loan, as well as the interest rate and terms you receive.

Your existing mortgage will always be included as part of your debt along with the amount of a new mortgage for the next home. As far as income, some lenders may use a fully executed lease as proof of income while many lenders will only include rental income that is included on your prior 2 years of tax returns.

If your plan is to find a tenant for your current home, before you buy the next place, and this approach is acceptable to your lender, then it's likey you will have to have interim housing before you can find and close on the next property. In markets with low inventory, this could mean you might be in interim housing for at least 2-3 months and potentially it could be longer than a year before you find and close on the next place!

In either scenario though, lenders will typically only include only 75% of the rental income when calculating your debt to income ratio. What all of this means is your income will typically need to be substantially greater, perhaps twice as much as typical, to buy a another house with two or more mortgages in place on all properties.
Demand For Rentals, Similar To Your Property, In The Area Is Weak

If there is not data within the last six to 12 months, showing both an acceptable days on market and final lease amounts for very comparable properties, in the same area, that would support ideally covering all of your mortgage payments, real estate taxes, HOA fees and foreseeable required repair costs meaning it's not likely you will have a positive cash flow then it likely makes more sense to sell vs lease your property.  While appreciation can offset some of the need for positive cashflow, the need to sell vs lease only becomes more critically important if the property is not expected to appreciate much or at all during the time you will have it leased. For some folks, having an investment that's actually loosing money could add some value. So, part of your evaluation should include conversations with your CPA and financial advisors.
The Thought Of Being A Landlord Does Not Excite You

Even with great tenants,  a perfect rental still can still generate a lot of stress and hassles. Frozen pipes, clogged drains, broken garage door springs, pets, and roommates are just some of the frustrations and challenges that surface. Even ideal tenants want your full and immediate attention when something goes wrong with the property.

Challenging and difficult tenants multiple and exaggerate that stress and frustration. Daily calls from the tenants and late or unpaid rent just add more fuel to the fire! The move-out process can be another challenging time. Damage to walls, floors, carpets, and other components of the property can lead to disputes over the security deposit and to costly and time consuming repairs. Since every moment wasted arguing is a moment the house could be sitting vacant, you are often better off just paying for the repairs yourself to be able to lease the property sooner vs later.

If you don't plan to have a property manager to field these calls and to deal with all of these hassles then give serious thought to disruptions on holidays and vacation time especially if you typically travel out of the city or the country.

The bottom line if this all sounds like more grief then what you want to deal with then you should likely sell vs lease your property! 


Demand For Rentals, Similar To Your Property, In The Area Is Strong

If the data within the last six to twelve months, shows both lower days on market and final lease amounts for very comparable properties, in the same area, that would cover and ideally exceed all of your mortgage payments, real estate taxes, HOA fees and foreseeable required repair costs meaning it's likely you will have a positive cash flow, then it likely makes sense to lease vs sell your property.  If the property is also likely to appreciate then this is just icing on the cake for the positive cashflow meaning that it likely makes even more sense to lease vs sell the property. For some folks, having an investment that's actually generating a positive cashflow, could increase your tax bracket causing more taxes to be paid in excess of the increase in income. So, part of your evaluation process should always include conversations with your CPA and financial advisors.
You Have Always Wanted To Be A Landlord

Even with great tenants,  a perfect rental still can still generate a lot of stress and hassles. Frozen pipes, clogged drains, broken garage door springs, pets, and roommates are just some of the frustrations and challenges that surface. Even ideal tenants want your full and immediate attention when something goes wrong with the property.

Challenging and difficult tenants multiple and exaggerate that stress and frustration. Daily calls from the tenants and late or unpaid rent just add more fuel to the fire! The move-out process can be another challenging time. Damage to walls, floors, carpets, and other components of the property can lead to disputes over the security deposist and to costly and time consuming repairs. Since every moment wasted arguing is a moment the house could be sitting vacant, you are often better off just paying for the repairs yourself to be able to lease the property sooner vs later.

If you don't plan to have a property manager to field these calls and to deal with all of these hassles then give serious thought to disruptions on holidays and vacation time especially if you typically travel out of the city or the country.

The bottom line is if your plans include hiring a property manager or your full time job is dealing with you rental properties then leasing may be as or more viable then selling your property! 

Get One To Two Comparative Market Analyses "CMAs"

A CMA should also increase or decrease the value based on the current market conditions including, interest rates, and the supply and demand at that moment in time. Most real estate agents will perform a CMA before listing a home for sale and great Buyer’s Agents will also complete a CMA when working for a buyer who is considering submitting an offer on a property.

If you are not working with a prior agent, that has a proven track record that you have experienced first-hand, then you should start with at least two real estate agents who visit your home and give you their opinion of its likely selling price.

Don't accept or rely upon an Agent's "gut feeling" about the proper list or likely sales price. Ask for a ‘comparative market analysis’ (CMA), which shows the prices of comparable recently sold homes, as well as active comparable listings that potential buyers will also be considering when they look at your place along with comparable homes that were on the market, but did not sell because we can learn both what the market will not support pricing wise and some, if not many of these properties may also become active competitors when your place is for sale.

The on-the-market homes are the “competition” for your home. Ask the agents why each home was included in the CMA and whether any other comparable homes were eliminated from the CMA. Just realize that price recommendations are not an exact science. If this process was that black and white then Real Estate Agent's would not exist!

If the suggested list and/or sales price in the first two CMA's vary widely than you should have a 3rd CMA completed by another agent. But keep in mind that some agents will tell you to underprice your home in hope of sparking a bidding war. Others will suggest a flatteringly high price to ‘buy’ your listing only to demand a price reduction a few weeks later. The best agent can easily justify the sales price to you using timely and relevant market data. If any agent can’t defend their price, high or low, to you then please don’t expect those same agents to be able to justify your list or sales price to a buyer’s agent or buyer who wants to buy your home for less!

 Have Mitch Complete a Market Analysis of your home or condo.

An Appraisal


State-licensed appraisers will walk through a property and write an official appraisal report. While appraisals offer a little protection for buyers regarding the value of a property, the customer for the appraiser is the mortgage lender not the buyers. Banks typically require appraisals when refinancing your home, or getting a mortgage for a new home, to minimize the lender’s risk by making sure the bank is loaning no more than what the property could be resold for if the buyer was unable to repay their mortgage loan.

Instant Online Value Estimators


These are easy, convenient, and, best of all, free. There are many real estate and lending websites offering estimators out there. You can use this if you want a general estimate of your home may be worth. While these can help you decide if it’s worth considering selling or refinancing, these sites tend to dramatically undervalue or overvalue property values. So, using these when selling or purchasing a new place could create unrealistically high or unreasonably low expectations that could cost you thousands of dollars as both a seller or a buyer!

Price Per Square Foot Calculations


Price per square foot calculations are often used by sellers, buyers and unfortunately even by some real estate agents to determine the value of a property in comparison to other recent sales. This approach divides the sale or list price by the above ground square feet to arrive at a price per square foot.

If you are comparing to identical floor plans, with identical finishes and features, built at the same time, by the same builder on lots next to each other and both places have continued to have identical updates, then this approach might yield a meaningful value. However, this is rarely the case since price per square foot calculations do not reflect the many differences in properties like, bed and bathroom configurations, land value and location, garage spaces, finishes, updates and improvements, the year the place was built or any of the hundreds of differences between homes.

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