Should I rent out my existing home when I move

In the current housing market, moving home presents people with two challenges: finding a new property – which is easier than it has been in previous years – and selling their own home, which can be a little more difficult.

The decrease in mortgage availability due to the credit crunch has led to a far higher number of potential sellers than there are buyers. While at the peak of the market in 2007 there were approximately seven homes on sale per buyer, the most recent estimates (May 2008) were closer to 15 per buyer. In short, that means more competition when selling your home.

This has prevented many homeowners from moving home, even after they have agreed to buy a new one – and many deals have broken down as a result.

However, if you can afford it, renting out your existing home is a clever way around this that cuts your existing home from the chain. But is it a good idea in the current climate?

Advantages

In theory, so long as you can afford the additional deposit required to secure a second home, your rent payments from your old home could cover its mortgage payment, or even exceed it. In this sense, it would be the equivalent of only paying one mortgage.

Or, if you have fully paid off your original mortgage, your rent payments could cover your new mortgage.

Providing things go well, this could be a sound financial investment – you will have equity in two properties, and if you find yourself struggling financially at any point, you can sell one of the homes. In particular, it provides great security for retirement, since the rent should offer a consistent income, and selling is always an option.

Disadvantages

There are some dangers involved in buying a second home while renting your existing property which should be taken into consideration.

First is the possibility that there could be periods in which your rental property is empty. The rental market is generally booming at the moment, mainly due to the shortage of mortgages being offered, but there are also increasing numbers of properties going up for rental, which means extra competition.

No tenants means no rental income – and you should be prepared for this possibility if you are looking to rent out a property.

There are also the issues which affect any rental property – as the landlord, you will be responsible for any repairs or replacements. When it comes to replacing things like expensive appliances, this could take up a sizeable amount of your rental income. In this respect, rental income can be unpredictable.

Should I go ahead?

In the current financial climate, it really depends on your particular financial situation. If you are relying on renting your current property as a source of income, there is a risk that your income could be inconsistent.

However, if you are simply looking to top up your income, or renting out your property as a means of paying towards the new mortgage, it can be a sound financial investment.

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