I can't advise as to how to make the decision. My best advice is to look at the entire financial picture. Rent will be slightly more, and you will lose the mortgage tax deductions. That is a cost.

On the plus side you will save a little bit of gas money driving the kids to school and the costs of maintaining a home will no longer be yours.

One thing in your post struck me though. You said your roof will need to be replaced in 3-4 years. Depending on the price range, that could present some problems for a buyer trying to obtain a mortgage.

I think you would have to roll over the money you get from the sale of your current house into another house within two (?) years if you net more than $250,000 to avoid capital gains tax. In high cost of living areas it is easier to net this much if you've lived in the house for a while, and you would never net this in other parts of the country :)

We rented while we waited for the perfect house. As far as month to month expenses go, we found renting to be much cheaper than owning. No taxes, no pest control payments, no yard expenses, no homeowner's insurance, no surprise repair bills for appliance issues, plumbing problems, etc.

Even if you factor in the loss of the mortgage deduction and the expense of the renters insurance, we still came out way ahead.

Moving twice wasn't easy and there are expenses associated with moving. We rented while prices were still falling so we gained financial benefits by waiting for the lower prices. If your market is rising there will be an opportunity cost associated with renting and waiting.

Thanks for your thoughts! Looking at the entire financial pic makes sense.

I looked more closely at rentals in the area, and actually I was wrong about the cost of renting a home closer to the school - they're looking $200 - $300 more/month. We have a cat and a little min pin, who is a great dog and not loud or destructive -- but many rentals do not allow pets. Also, if we rented a condo or large apartment rather than a home, there won't be a garage to store all my DH's tools and some of my sewing stuff. I think it will be a challenge for us to downsize all our cr@p (although I think we SHOULD). Further away from the school -- ie would require driving -- opens up better opportunities. Many condos have pools, which would be nice for my boys.

Capital gains won't be an issue if the max is $250K -- our house isn't even worth that much ;-) I think if we sold now/soon, we'd conservatively walk away with about $65K that could go toward a down payment somewhere else. Maybe we'd profit a little more, but that would probably depend on whether the remodeling etc made our house more appealing than other homes, or was just considered normal maintenance (everything we have done was due to things that were breaking/wearing out). Our roof replacement was estimated at $6 - $7K. We're thinking of taking care of that in the next 2-3 years regardless.

Ideally, of course, we'd like to stay here until the market peaks, sell at the peak, rent while prices fall, and then buy our "forever" house ;-)

We go through the same debate periodically. Are you in Sacramento (based on your user name?) If so, also factor in the CA property tax situation. Mortgage interest deduction may not be a big factor if you haven't refinanced recently, since at 13 years in, it's likely decreasing pretty quickly. I found that our total cost for our current house is about 75% of market rent for a similar house in our neighborhood right now (and much less than the hypothetical larger house we might like to rent or buy in other neighborhoods). Timing a market like this one is really tough--rents are way up in our area, and only older homes in multi-unit buildings have any rent control protection in our city, so you lose that security blanket if you sell and then go into the rental market to wait for the housing bubble to pop.

One option we've considered is to rent our current house out and then rent a larger house. This has some tax implications for capital gains if you later sell, but also provides some buffer against rising rents. It obviously doesn't let you lock in any gains at the top of the market, though. (However, if you have two years of rental history for your current house, you can qualify for a new mortgage with that added to your income, so there's also that option if the market does crash in the interim.) Main challenge we've found is the pet factor, and so we've just stayed put. We also had neighbors who rented out their home a few years back when the market was near the bottom (because they couldn't sell for a price they were interested in) and when things went haywire and rents spiked, they actually ended up deciding to move back in rather than sell and buy something new, too. It's a tough call--good luck with the decision!

Sometimes it's more than just a financial decision. We are trying to make a similar decision right now. Trying to decide whether to sink a ton of money into our house, and still not have exactly what we want. Or buy a new house. And still not be sure if we will be able to get exactly we want. But will probably get closer to what we want?

Add on top of that the issue of the second mortgage. Trying to qualify for a second mortgage before we sell our existing house. Plus we are in a 2-5/8% mortgage - a rate I don't think we will ever see again.

I'm tempted to just sell our house, go into an apt while we look for something new. It's a sellers market - so I think it would strengthen our offer. But my DH is a bit more conservative and he is afraid of being homeless.

I guess this is my long way of saying I have no advice for you. But I feel your pain.

artemis78 - yep we live in Sacramento! My DH has said the same thing, we are so far into paying off our loan that the interest deduction is minimal; with the interest payments being on the front-end, most of it has been paid already.

We have also thought about renting out the house, but to deal with the hassle of tenants is not something that appeals to either of us! I guess we could think on it some more, certainly the homes here DO rent, I rarely see the rentals sit for long.

I'm concerned about the yard, though. It's not the standard lawn in front/back, automatic sprinklers, mow-n-blow-can-keep-it-up kind of yard. If we were to rent the house, I think we'd need to put the sprinklers on a timer for the backyard, and then find a more specialized gardener -- or perhaps I would need to come and take care of it myself (which I wouldn't mind, especially if we moved to a condo that had no yard).

pixie -- my DH is also more conservative, and my "things will work out" attitude bothers him. But the idea of renting a condo or townhome with a pool, an upstairs/downstairs, a place that allows pets, no yard maintenance etc...it sounds like it could be a nice change of pace while we keep our eyes open for the right home :-)

This post was edited by melle_sacto on Tue, Jul 8, 14 at 13:23

My concerns would be the difficulty of "timing" the market and how long it would take to find the right home. How much would it affect you if interest rates shot up rather quickly or if there was a surge in the market that priced you out? The pools of condos sound wonderful to me too, but the allure is lessened by the thought of shared walls (for me), I do not like the attendant problems of neighbors that close.

If you are hoping for a more expensive home, I would seriously look at the property tax situation (prop 13, I think). How much of a difference will it be for you?

I'll read about property tax, but I thought that the tax was based on how much you pay for your home. I wouldn't stay in our current home merely to save on property taxes.

It just seems like the only way to "move up" is to pull out of the house when the prices are higher, then buy again when they are lower...thereby using the profit from the sale as part of our down payment. When the prices are lower, our own house price is lower. How else do people time their move-up purchases?

I only have one friend who has sold and moved up, and in between those homes they sort of rented as well. It was a little different in her situation, her DH is a realtor and his parents are realtors. My friends sold their home, rented a house from his parents, then bought a "dream home" (to me a dream home, to them I think it's a good home but not a dream home). They also "flip" homes as a side business, on occasion.

Edit: tishtosh I wanted to add that I agree with you about the shared walls. However, I would say all the homes here are pretty close anyway. If your windows are open, you can hear the people next door if their windows are open. We think the rental home on one side is a Section 8 rental, that particular rental seems to attract "different" tenants then the others. Also the landlord doesn't live locally and seems unconcerned about the property other than keeping it rented. But you're right, we'd be giving up a level of privacy.

This post was edited by melle_sacto on Tue, Jul 8, 14 at 14:20

I think the timing helps with move-ups, but the other two factors are that if you have been paying down your mortgage for the past 13 years, you will have a bigger downpayment to put into the new house than you did when you bought this house, in addition to any gain in value--and then many people just move up later in life when incomes have gone up somewhat, so they qualify for more than they did the first time around. We definitely have friends who have successfully moved up even without making any money to speak of on the first house, just between what they'd paid off on the old house and the lower interest rates (though of course it's more painful to do it that way!) And depending on timing, the up market can come back to bite you when you buy a bigger house--if everything is up 20%, you get 20% more for your smaller house, but you also pay 20% more for a bigger house, which amounts to more money in the end. (Renting while waiting for the crash might help with that, but only if rents also stay reasonable--not the case where we are, sadly, so people who went that route are pretty much stuck.)

Also, take into account the costs associated with selling/buying a house.
Why do you think that Sacramento house prices, especially in the area and the type of house you're looking for, will go down in the foreseeable future?

Don't the prices always go down after a while? I thought the pricing cycle fluctuated. In the time since we bought our home, they went up like to nearly DOUBLE (the crazy housing bubble where we probably should have sold but had only been here two years), then lower than we bought (like $60K or more, made me feel like we'd be trapped here foreeeever), then stabilized to around what we owed, and now they're back up over what we bought, but maybe just $30K or so.

What I'm getting from this, though, is that there's really not a cost saving benefit to renting for a while before buying again...like i'm talking renting for years, not just a few months. That's a long time to rent though, maybe it would be really frustrating!

Two years ago, we moved out of the house we'd owned for 30 years. We didn't found a house we wanted to buy, so we rented. I like our rental house very much and enjoy having a landlord to fix what goes wrong. After our 1 year lease expired, I asked about another lease. The landlord said she wanted the house back for a family member, but wasn't sure when she would need it. I hope I find a house to buy before we have to leave our rental. I would think this situation could happen to any renter, so if you are thinking of doing it several years, you might have to move more than once. Consider the cost and trouble of moving. I am still missing a few things that seemed to have disappeared in the moving process.

Will you find the "right" house? I've looked on and off for almost 20 years and have never found a house I would sell my house for. Our house is not perfect by any means but I never found anything better. We won't seriously consider moving again for a few years but we have doubts we will find anything that will not need major remodeling. DH thinks we will just end up building a modest home instead of buying.

So think about your chances of finding the right home before you sell. Will the right home be affordable to you? I would start looking at homes now to see what is out there and help clarify what you would be looking for.

I think it's a great idea and I would seriously consider it as well. It's also a good way to get to know a new area before you make a purchase. We did it back in 1999. But we sold to get out of a problem house that was too cramped and had septic issues. We took a hit on the house we dumped, and we rented in another part of our state while the kids were young. In 9 quick months we found a home. In one year, the market had rebounded and we doubled our equity. It was the first time something went our way.

I do look at homes for sale every couple weeks. Nothing is "perfect" -- at least not in our price range. But I think the sad fact is that the homes I like the most will never be in our range LOL! Maybe it's extreme of me to say I'm hoping to find the PERFECT home, more like we're hoping to find a place that suits us better...even with all the improvements we've made, certain things that don't work aren't going to change.

Thank you for all the thoughts, there's definitely a lot to consider with something like this!

"No taxes, no pest control payments, no yard expenses, no homeowner's insurance, no surprise repair bills for appliance issues, plumbing problems, etc."

You pay all those things as a renter - they're just part of your rent. The only time renting is cheaper than owning is if the owner of the rental property is losing money on it. (or, like most people, you're comparing a much smaller rental to a much larger owned property)

We did this and it worked well for us, although moving twice was a royal pain. I live in a super duper hot market and any contingencies on your offer (such as waiting for your own place to sell) automatically put you out of the running, and the thought of having to time both purchase and sale exactly right so as not to be homeless or have to carry two mortgages was too much for us. We ended up buying something exactly a year after we moved into our rental, so luckily our lease at that point was up. That would be my only worry--that you might have to break a lease if you find something before it’s up.

The idea of selling at the height of the market, investing the money, then moving up into a dream house when the market has come down, sounds great in theory, hard to pull of in practice. To speculate that there is another housing bubble and that your area has reached it's peak, and the bubble will burst, giving you the option to pick up your dream house for 50% less is highly unrealistic.

You need to live somewhere in the meantime, and as you found out, rents are actually higher than your mortgage. Buying and selling will cost you in fees/taxes, etc.

Unless you're moving to a cheaper area or want to change your lifestyle, it sounds like a bad idea.

Have you ever lived in apartment with kids and dog? Unless there's proper sound insulation between floors, there's either trampling on top of you or complaints from the people below. If you want to see what life in a condo is like, I'd rent your house and try it out. Still less hassle than selling, moving, finding out you hate it, and then not finding a house that you like and can afford (when the market hasn't come down but has gone up even more).

Also, looking at historical data, real estate prices have increased at a more moderate pace, so chances are they will go up more.

This past spring I wanted to sell the big old family house and cash out the equity (I bought it in the mid-1990’s) and downsize. Someone I know wanted to buy it, and we signed the contract in March and we closed in the beginning of June. I had targeted a townhouse community that I wanted to move to, but by the end of May, there were only a few places there that came on the market, but all had multiple offers and I lost out on each of them because I was still in my house (and I also blame my crappy realtor). I looked at rentals, but in my area they are expensive and none are short-term. Fortunately a friend offered me a bedroom in her home, so I moved in with my old cat and put my stuff in storage. A week later a townhouse I wanted came on the market but by this time I had ditched my realtor and I called the listing agent directly. There were four other offers on it that weekend, and my offer was accepted because I was able to close quickly -- I still needed a mortgage, but I was in good shape because I had a lot of cash on hand from the sale of my house, and we’re set to close at the end of July. If I had moved into a rental this might not have been possible, especially without a lot of expense, and I am lucky that I had someone that would take me in. It’s actually working out really well, but both of us are single and I think this arrangement would be more difficult for a couple or a family. And also, I won’t be in her house for more than a few months total -- I’m sure my welcome would be worn out over too much time.

I think for the original poster that it is important to know ahead of selling what and where you ultimately want to buy. I looked around for more than a year before I decided to sell, so I knew the market and I had a plan (and a great friend!)

JoppaRich, this statement isn't necessarily true. ["The only time renting is cheaper than owning is if the owner of the rental property is losing money on it. (or, like most people, you're comparing a much smaller rental to a much larger owned property)"]

Many owners of rental properties have owned them for quite a few years. They purchased when the properties were much less expensive to buy. Their mortgage probably hasn't changed, or may even have gone down significantly if they refinanced with the recent lower interest rates. So they can rent the house for well over the monthly expenses for the property.

In a strong market area, it does not take long to rent for a profit. For example, we purchased in 2010--near the bottom of the market. But with the surge in prices here for properties, and rents, we could rent out our house for at least $900/month over our mortgage plus expenses.

I don't think there's a perfect way to do this. It is messy and stress-inducing all ways!

I put my house up for sale two weeks ago. It still hasn't sold although we are very hopeful it will soon. Meanwhile I found the "perfect" house and jumped on it! I had certainly not expected to find it this soon--I was prepared to sell, then rent for awhile. So now I have the nerve-wracking task of hoping to sell soon. . . but I also no longer have the nerve-wracking task of moving twice, renting, etc. Luckily I don't have a mortgage on the current home, so I can afford the transition.

The OP's situation is complicated by the fact that she needs the market to go down to be able to buy the dream house.

This reminds me of friends in NYC, whose home values shot through the roof at the height of the bubble. As real estate experts they were very much aware that the high prices were bound to tumble within the next few years. However, they still needed a place to live in NYC during the time.

The low rental costs are doubly true in California, where property taxes are locked in at time of purchase even for investment properties, with only very modest increases (the lower of 2% or the annual CPI increase) allowed. So many rentals that were bought decades ago are paid off and effectively only have maintenance costs. That's not to say that landlords necessarily charge any less because of that, but you do periodically find rentals here that are not exorbitantly priced because the landlords just want good long-term tenants and have a lot of flexibility in price.

For the OP, though, I was chatting with a friend who owns a home there about the Sacramento market recently, and her take was that it is actually pretty stable and not so bubbly right now--nothing like the Bay Area market. In the neighborhood where she lives, prices are up from the bottom but nowhere near the peak and at a pretty reasonable point relative to historic pricing, which could just represent a normal correction (and thus they would be unlikely to fall substantially). Is that true in your neighborhood too? If so, I might not worry so much about timing it, and just keep looking to see if there are other homes you like that make sense in your budget. If you're still in your original loan, you could also look at whether refinancing to a 15-year loan might make sense with the lower interest rates--could let you put more money aside for a new downpayment in the interim.

Here is an interesting Apples vs. Apples rent vs buy scenario that happened in the last few months. We own one side of a duplex that we rented to a couple for 2,100 per month, plus we pay utilities and maintenance including snow plowing and lawn care. The market would have supported a higher rent, but we don't like raising rents on good tenants unless there is a real increase in our costs and that didn't happen, so had they stayed their rent would have been 2100 next year. However, the next door owner's wife died and he offered to sell the other side to them. Assuming that they put 20%down on a :=30 year loan at just over 4%, their payment is about 2270 (including taxes and insurance) But they also now have have utilities, maintenance, snow blowing, lawn care,etc on top. So they are definitely paying more to buy, but they will get some of it back in tax deductions. But although they are building equity, they will end up paying significantly more each month for virtually the same place.

We released the property immediately for 2400, but we will continue to pay utilities and continue to maintain the property. We even upgraded the kitchen to granite before she moved in. This tenant will only be here for a year' because she sold a nice rancher with acreage to build on the golf course in town. She will stay with us until her new house is ready. She is paying way less in rent than it would have cost her to stay in her previous home while she builds.

Nonetheless as landlords we are getting a fair ROI. On a house that is paid for

I really appreciate reading everyone's input! So many times moving seems like a simple, no-brainer; for us it's been a struggle.

For now, we're going to just continue finishing up the various projects and maintenance. I imagine anything we moved to would also need some type of work at some point! We'll probably think more seriously about this again in the spring.

artemis78 -- I do think prices are more stable in Sac than they've been, but they are also up compared to where they were a few years ago. A few years ago my SIL was adamant that my DH and I should try and refinance our loan. For her, and also for our BIL, they had recently bought their homes and refinanced within a couple years, so it made sense. We have a decent interest rate, not rock-bottom, but not too bad either. Well, due to bad luck and bad timing, the appraisal from the bank was done at an all-time market low. So, according to them, we had NO EQUITY in our home even though we'd been paying it off for ten years and had remodeled. It was nothing but a waste of time and money, and I think I took it personally -- like the universe was saying we'd never find a way away from this place. ;-)

This post was edited by melle_sacto on Thu, Jul 10, 14 at 12:57