To Lease or Not To Lease? A Strategic Alternative Amid Market Uncertainty

The rental market in Devonshire has seen a notable uptick, with the average closed lease price now reaching approximately $2,800 for a mid-sized home. For homeowners evaluating their financial options, leasing may provide a viable alternative to selling—particularly given the current mortgage rate environment.

Does Rent Cover the Full Cost of Ownership?

Whether the $2,800 monthly rent covers the entire housing expense—including mortgage, property taxes, insurance, and HOA fees—depends largely on the property owner's mortgage balance and interest rate. Homeowners with high loan balances and interest rates may find that rental income falls short of covering all ownership costs. Conversely, those with lower loan balances or previously locked-in lower interest rates may see leasing as a way to offset expenses entirely.

Market Conditions Favor Leasing as a Short-Term Strategy

While inflation remains at 3% and the current administration's long-term budget plans suggest interest rates may not decline significantly in the near future, homeowners looking to move may consider leasing as a bridge strategy. Rather than selling their current property in an uncertain mortgage market, they can lease it out temporarily to offset carrying costs while securing a favorable deal on a new home purchase.

Additionally, homeowners leveraging rental income may improve their financial profile when applying for a second mortgage. By waiting to sell their existing home, they could position themselves to capitalize on a potentially improved market in the coming years. However, qualifying for a second mortgage may require leasing your current property before you purchase your next home, which would require a temporary living situation and possibly storage costs for personal property.

Community Leasing Regulations

Devonshire homeowners considering leasing must adhere to community use restrictions outlined in the third amendment. Key requirements include:

• Owners must reside in the property for at least 12 months before leasing it.
• Each owner is limited to one rental property within the community at a time.
• A signed lease must be submitted to the community manager within 10 days of execution.

Other Considerations

One important factor to consider is the loss of the homestead exemption on school taxes for leased properties. Since school taxes make up the bulk of the tax levy, losing a $100,000 tax exemption can have a significant financial impact on property owners. This added cost should be factored into the decision-making process when evaluating the profitability of leasing.

Additionally, we estimate that for monthly rent to fully cover housing expenses, the monthly mortgage payment (principal plus interest plus PMI) should be no higher than $1,500 per month. This threshold actually encompasses a large number of existing homeowners, making leasing a viable financial strategy for many in the community.

Weighing the Pros and Cons

Advantages of Leasing:

• Provides cash flow to offset ownership costs.
• Allows homeowners to retain property while waiting for a more favorable sales environment.
• Helps facilitate the purchase of a new home without selling at a potentially lower price.

Challenges to Consider:

• Qualifying for the second mortgage may require leasing your current property before you purchase your next home, which would require a temporary living situation and possibly storage costs.
• Rental income may not fully cover mortgage and ownership expenses.
• Homeowners must comply with leasing regulations set by the Devonshire community.
• Managing tenants and property maintenance requires some time and effort.

For homeowners on the fence about selling, leasing offers an appealing option to maintain property value while managing financial obligations. With careful planning and adherence to community regulations, leasing can be a practical bridge to long-term real estate investment success.

For personalized real estate advice from a Devonshire expert, call Brendan Hirschmann, REALTOR® at 972-559-4648. Brendan can provide you with the insights and guidance you need to navigate the current market trends and make informed decisions.