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2018-03-28 15:52:57
5 Reasons NOT to Sell Your House

Written by Scott Fling

There are a lot of reasons to sell a house. Job relocation, decrease in income, Death of a spouse and divorce are a few that come to mind. There are certainly circumstances where the sale of the house is the only option.
However most people consider selling as the only option when they just want a nicer house or a bigger yard or a quiet neighborhood. What if there was a better way?
I have a colleague who instead of selling his house to move into a larger home with more amenities, he decided to keep it and rent it out. I recently had a short conversation with him and what he was saying made a lot of sense so I wanted to share it with my friends and future customers.
He told me that he wanted a nicer house but he didn’t want the higher payment. “Well, that’s pretty much what everyone wants!” I remember thinking to myself. But rather than wishing, he decided to figure out how to do it.
He contemplated selling his current home and was trying to figure out how to manipulate the term of the loan on the new house to keep the payment down. He thought of ways to structure the financing and he thought of ways to rent out a portion of the new property. He thought maybe making a few extra bucks here and there doing side work could cover the difference in the new payment.
It wasn’t until he asked himself, “What if I keep the old house and rent it out?” that the math started to come together.
I decided that the best way for me to convey this information was in list form so here we go:

5 Reasons Not To Sell Your House

1. Interest rates are still pretty low. One of the deciding factors in a real estate investment property (rental property) is the margin. Basically, the difference between the payment/expenses and the Rent, The lower the interest rate, the lower the payment which means a bigger margin. If your current interest rate isn’t great, now is the time to refi and get the rate down. Also, you will want to do this while the home is your primary residence so that your rate can be as low as possible. If rates go up as they are expected to do, you may not ever be able to purchase a rental property with this low of an interest rate.


2. Rents are high and demand for our area has never been better. More people are moving to Colorado every day. New construction is catching up but still demand for rentals remains strong. Some say that it will flatten out and I am sure it will as all markets fluctuate, but with all of the new businesses being built and even more being planned, our metro area is going to continue to see a strong rental market for some time. Higher rents have the same end result as lower interest rates as I discussed in Item number one above. Bigger margins.
High demand also results in lower vacancy rates and taking less time to lease to new tenants if a property does become vacant.


3. You lose the appreciation. Let’s say your current house is worth $350k. The national average of 6.5% appreciation is very conservative if you consider the rates of appreciation are usually a bit higher in the Denver market. Let’s be even more conservative and use 5% for this example.
5% of $350k is $17,500 annually or $1458.33 monthly. If you sell, you lose this money.


4. You can always sell later. Let’s face it, if your situation changes and you end up needing to sell the property, sell it. There have only been a few times (and they were relatively short lived) that houses weren’t selling very well in the Denver market. I have known a few people over the years that got caught in a down market when they had to sell but I have known a lot more that made a lot of money by holding on to their property.

5. It is expensive to sell. There are broker fees, closing costs, repair costs, you may get stuck needing to buy a new appliance or install a roof just to get the deal done. Don’t get me wrong, if you all decided to sell tomorrow, I’d be happy to help each and every one of you but you are smart enough to know that if you don’t sell, you don’t have these expenses.

Taking all of this into consideration, my colleague decided to keep his current home, rent it out and purchase his new home. His scenario worked out something like this.

His current home was worth $350k. He owed $200K.
He refinanced the property and took cash out. He ended up with a loan of $300K.
His PITI on the current property was now $1898.33. (Calculated at 4.75%)
He found a replacement property that he loved for $465,000 and used the cash from the refi for the down payment.
He rented the current house out for $2500 per month. It was rented in less than one month.
His current PITI on the new house is now $2320.66. (Calculated at 4.75%)
He was paying $1500 a month before and living in a house that he didn’t like.
Now he pays a total of $4218.99 in payments and receives $2500 in rent for a difference of $1718.99.
You may be thinking, wow! That’s only $218.99 difference from what he was paying before. Correct, but it gets better!

That’s a full $601.67 difference than if he sold and put 100k down. It would have been a little less if he would have put the entire $125k down after selling expenses and repair costs.

Add on top of that, the appreciation calculated at the very conservative 5% number, and he lives in his new home for a net cost of $265.66! Since his interest rates are fixed and rents will likely go up long term as will prices, he will eventually be living in his home for free. Further add the potential tax benefits and you get there even sooner.

I can hear the naysayers now screaming at the screen.


Yes, there are many factors and each individual scenario needs to be looked at carefully. You need to make the decision to be a landlord or to not be a landlord, take the risk or not take the risk. Let’s face it, none of us have a crystal ball.
This particular scenario worked very well for my colleague but it may not be for everyone. I do think however that it should be part of your decision process.

There are a lot of actions a property owner can take to minimize risks and protect their investment from the pitfalls of renting.

I can provide you with information that can help you with these decisions and help you look at your individual situation to see if it might work for you like it did for my colleague.

I would be happy to set an appointment to chat about this further and of course if you are just wanting to sell, I would be happy to help you with that as well.


Scott Fling
Axiom Realty

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2018-03-28 15:52:57
5 Reasons NOT to Sell Your House

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