During the height of the pandemic, my wife and I sold our principal residence because we needed more space than a downtown condo provided.
Our South Florida market was very hot, and we sold for about 50% more than we had paid for the property about four years before.
That left us with a large amount of cash, but we had limited living options as our son was a high-school junior who attended an out-of-our-city public school, so we needed to stay on his bus route.
We thus opted to become renters and put our cash windfall into a Disney-area resort property that could not be our permanent residence. (Owners can occupy their units only a total of six months a year.)
We rented a large place near where we had previously lived, but I was always nervous not being a homeowner because that leaves you vulnerable to rising rents. Ultimately, that can price you out of the market in a way that can't happen when you own your home.
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Renters Face Real Risks
When we sold our residence, my wife and I intended to live where we had to until our son graduated, then move elsewhere in South Florida.
We had toyed with the idea of renting in downtown Delray Beach (which has a vibrant restaurant scene), seeing whether we liked the area, and then perhaps buying a condo when our son moved out and we'd need one less bedroom.
We knew instantly that this plan had some holes when as graduation approached we looked at rental prices for three-bedroom condos in our desired area. Since we had last looked, prices had increased by roughly $1,000 a month, and while we could have afforded to pay that, we most certainly did not want to.
In our case, we had no real ties to any one part of South Florida. I simply wanted to find a growing market where we could afford to buy a property while insulating ourselves from rising rents, .
We ultimately bought a single-family home 45 minutes north of where we had previously lived, but our situation is somewhat unusual.
My wife and I both have jobs that are not location-based. And our son had few ties to where we lived because he had gone to school 20 minutes north of our home. So for him, our new location was the same distance, just in a different direction.
Why Selling Your Home Can Be a Bad Idea
Cashing out on your home to become a renter comes with real risks.
After we sold our principal residence, the condo we lived in rented for $2,495 a month when we first signed a lease a little over two years ago.
When we renewed our lease for a second year -- only one-year leases were allowed, which is fairly typical in Florida -- the rate went up 8.2% to $2,700 a month.
Our landlord easily could have gone up to $3,000 a month or more given the going rates. But he recognized that we were good tenants who paid on time and rarely asked for anything.
About halfway through the second year of our lease, I called him to tell him we wanted to leave. He was thrilled. That's not because we weren't good tenants; we remain in touch with him. It was because he believed he could get $4,000 a month -- which he did, with multiple offers at that price. That's a 48% jump from the $2,700 we were paying in the second year.
Now, that's a somewhat extreme example of rising rental prices, but over time rising rents can price nonowners out of the markets they want to live in. That in turn can force people to take their kids out of school, to accept much longer or more complex commutes, or even to leave their jobs.
As an owner, taxes may go up and maintenance costs rise, but those are largely predictable and can be planned for. When you rent, you're at risk of major market moves, and while what happened in South Florida over the past few years has been extreme, over time rents generally climb.
So, while cashing out and having six figures in the bank seems very tempting, it's important to understand that owning a home insulates you from certain risks.
