If you plan to move into a new house to upgrade, downsize, relocate, or for other reasons, then you are probably also thinking about whether you should rent your previous house or sell it. Like other big decisions in life, this can’t be answered instantly. Both renting out and selling the house offer advantages and disadvantages that the owner needs to weigh carefully before making a decision.
If you also have the same questions in mind and can’t decide yet, we’re here to help you. Let’s try to take an in-depth look at the different considerations for both options. This way, you can have more ideas on what each option offers for you.
Things to Consider About Renting Out Your Home
If you choose to rent out your home, here are some of the things that you need to consider:
1. Will renting out your home be profitable?
The first thing that you need to learn about if you choose to rent out your home is if it will generate positive cash flow or it will just make you lose money. To find out about this, add up all the expenses of renting out the home and subtract them from the money that you will make when you become a landlord. Here are some of the expenses that may come along with renting out a house:
- Mortgage – the principal and interest need to be calculated into the equation.
- Repairs – repairs are always expected in any home.
- HOA fees – this depends on whether there is or there is no HOA for your neighborhood.
- Insurance – insurance fees usually increase each year.
- Vacancies – when renting out a house, you can’t expect to maintain full occupancy the whole time.
- Advertising – if you want to rent out your property without using an agent, then there will be advertising expenses to shoulder.
- Miscellaneous – you also need to include the minor expenses, including credit checks on tenants.
The expenses may vary, but you need to do some educated guesswork on what your rental income will be. You may also consult a real estate agent who handles rentals for more ideas. Considering the long-term rent prices also helps. Try to see if they will go up or down.
2. Hiring a property manager can decrease your profit.
If you are moving to a new city that is quite far from your previous home that you plan to rent out, it is essential to hire a property management company or a property manager. It’s because rental properties are difficult to manage when you are not always around. However, keep in mind that rental homes have additional fees, and these can eat into your potential profits. You can plan to pay around 10% of the monthly rent to the property manager, depending on the local market.
3. Are you ready to be a landlord?
Rental ownership is also stressful as you have little control over what the tenants do in your home. You can either get tenants that pay their rent on time and keep the property clean and organized or tenants that never pay on time and wreck the house. And even if your tenants are decent, it is still quite stressful to answer phone calls, keep up with maintenance, and more. Before choosing your tenant though make sure to screen their background here, so you can get a better idea of who you’re renting out your place to.
Being a landlord is equivalent to hard work, too. Therefore, before you decide to rent out your home, ask yourself first if you are ready to be a landlord. You can also check out our 5 Essential Tips for Every First-time Landlord for more ideas.
4. Do you plan to come back?
Renting can provide the homeowner some security if they are relocating because they always have the option to return home. Selling the house and buying another home incurs costs. Therefore, it might be a cheaper option to rent out your house and move back in if you plan to return.
Most of the time, people who aren’t sure about their plans hold on to their properties. It’s because it allows them to keep the option open to selling in the future. There are times when choosing between selling or renting a home is more than just about the finances, but as well as other life decisions.
5. Consider the taxes, too.
If you are lucky to have great cash flow from your rental, you should not forget about the tax consequences, too. Like other income-producing assets, keep in mind that you will be taxed on any income that you earn from your rental at your ordinary tax rate. Another expense that can decrease your profits is property taxes. Therefore, before you decide, try to speak with a tax professional first for more details about taxes for rental properties.
Things to Consider About Selling Your Home
If you are leaning more on selling your home than renting it out, here are some of the important things that you need to put into consideration:
1. Selling a home is beneficial for those who are relocating to another state or country.
When you choose to sell your home, all of the burdens that come with renting your home out will be avoided. However, selling your home is still stressful as there is still some work involved. But in the end, you will get a check for your home and move on when it has been sold. This is a more beneficial choice if you are moving somewhere far from your previous house. This way, you no longer need to deal with different rental problems.
2. Tax considerations for selling your home.
Taxes are a major area of concern for both selling and renting out homes. When you sell your home, you need to consider the issue of capital gains. There are tax breaks that come with homes that you have lived in for two of the past five years, which can help you avoid any capital gains taxes. This is actually something that discourages other people from renting out their homes as they can be subject to these taxes. The main guideline is that when your personal residence has a large gain, it is better to sell it than rent it unless you wish to move back.
3. Selling your house can help you avoid a falling real estate market.
If it seems that the local real estate market will drop in the coming years, then it makes sense to sell your home now. By selling your home, you can generate as much income as possible from it and a lot more revenue than you would if the market drop out in the following years. However, you can’t really predict what will happen in the future, and you might also be wrong. But if you feel like you are correct, then selling the house is a good choice. You can then just invest the money that you will earn and hopefully make more.
4. Selling your home will provide you with a down payment for your next home.
One of the main reasons people sell their homes instead of renting out is because it provides them with a significant amount of money to cover the down payment on their next house. When you have a considerable down payment, it puts you in a better financial position to buy a home that you want in a place you prefer to live in.
5. There are no tenants to worry about when you sell your home.
For some people, having to talk to strangers is too much to deal with. When other people are renting your home, there are lots of things to think about. It’s likely that you will always think about what might be happening there, along with other stresses like repairs and maintenance costs. But if you sell your home, you don’t have to worry about these things. Therefore, when deciding whether you rent or sell a home, one of the most important considerations in dealing with the tenants.
Selling your home is a big decision to make. Therefore, you need to think about it thoroughly before deciding. But sometimes, there are also factors that can make you decide to sell it as soon as possible, just like the ones listed in our post on Situations When You Will Need to Sell Your Home Immediately.
Choosing between renting and selling a house is something that you need to take seriously, as it is a major life decision. Some people make hasty decisions without thinking through the advantages and disadvantages of each option. We hope that the information we gave in this post will help you decide better on whether you will sell your home or rent it out. The choice usually boils down to each homeowner’s unique circumstances and preferences. The better choice is up to you to decide.