NEW YORK (MainStreet) – With its astronomical home prices and high percentage of renters, Manhattan isn’t exactly representative of the national home market. Still, homeowners elsewhere might get some inspiration from a recent New York Times story on homeowners with a slick way to profit from today’s oddball housing market: renting out their high-end home for a premium and moving into a less expensive apartment, profiting on the difference.
Would that work elsewhere?
It could work in certain cases, especially for empty nesters and retirees ready to downsize. Because you’d sign a lease for only a year or two, you might be willing to save by renting a place that’s a little cramped, or in a neighborhood that’s less than ideal.
But unless there is a dramatic difference in the value of the home you vacate and the apartment you rent, it will take some sharp calculations to be sure the maneuver will pay off. The scheme isn’t likely to work if you’re intent on maintaining your old lifestyle in the new place.
In Manhattan, rents have soared because there’s been little construction in recent years, and because many people prefer renting to buying in today’s volatile market. Meanwhile, home prices have slumped, so that homeowners who want to cash in are either reluctant to sell or cannot get enough to pay off their mortgage.
Rising rents and falling home prices are common around the country, but in most markets the disparity is not as exaggerated as in Manhattan. The New York Times cited a couple with two children who are renting out the family’s 3,000-square-foot loft in SoHo for $12,500 a month, while moving to a 1,000-square-foot apartment in the West Village for $4,200 a month. With the savings, the husband hopes to start a business.