There has been a lot of discussion lately about renting your house rather than selling it outright. You may have heard that renting will bring you more profit over time, which may be true, but it is important to keep a few things in mind when making your decision. Both options have pros and cons. Lets dive a bit further into those so that you can make the best decision for yourself.
1. Do You Have the Money?
If you are wanting to liquidate and use the proceeds towards another home, selling is likely the way to go. If you can afford the purchase of your next home without the sale or otherwise do not need to purchase another home, renting may be a great way to generate long term passive income. Keep in mind that both selling and renting will likely require some upfront maintenance. A rental will require subsequent maintenance which can become costly.
2. Do You Have the Time?
If maintenance is not an issue, the next question to ask yourself is whether or not you have the time. Being a landlord can be very time consuming and it is not always easy to manage a property and tenants, especially if you don’t have previous experience. If you don’t want to deal marketing the property, tenant screening, collecting rent, organizing maintenance and contracting for repairs, you may want to hire a property manager to help you. Remember, hiring a property manager is another expense in itself but it will save you the time. When considering renting, keep in mind the time it will take to properly manage the property. If you opt for a property manager, consider the cost benefit.
3. Is Your Move Permanent or Temporary?
If you only plan to move away temporarily, renting is a great way to keep the home occupied to pay the mortgage while you are away. Depending on the length of your absence, you can consider short term renting as well. Knowing you have a place to land once you move back home can bring a peace of mind. Also, you stand to build more equity in your current house while you are away. Obviously, if the move is permanent, selling may be the best option if time and money are not at your disposal.
4. What Does the Market Look Like?
Is it a seller’s or buyer’s market? If it is a seller’s market you may benefit from the current demand and high prices, while waiting out a buyer’s market may allow you to cash in later on all while building more equity.
Are there a lot of homes for sale or rent in your neighborhood? If the market is saturated with homes for sale, your home may sit, making renting a great alternative option to wait out those high days on market. Alternatively, if rent demand is low and supply is high, you may be better off selling rather than chance not finding a tenant.
The good news is if you are between options, you can always list your home for sale and rent simultaneously, allowing you to weigh both options and interest.
5. How Much of a Profit Do You Stand To Make?
If you are looking at selling, how much are you looking at profiting? And with that profit, are you eligible for a capital gains tax exemption? If you are unfamiliar with capital gains tax exemptions, this is when you can earn up to $250,000 (single) or $500,000 (married) in profit on the sale of your home and exclude this earning on your taxes IF this home was your primary residence for 2 out of the last 5 years.
As you may know, property values have dramatically increased and these home prices continue to stay high today. Depending on your home’s location, how long you’ve owned your home and how much you’ve purchased your home for, you may stand to make a pretty penny. Is this number worth selling over renting to you?
Contrarily, can you rent your home for a premium? Are you in a high demand area with low supply? Rent can often cover your mortgage and still produce additional income. If you are looking for an additional revenue stream, renting may be a great option.
Expenses Of Each
As you may know, there are expenses associated with both selling and renting your home. If you choose to rent, you’re looking at the costs of continuing to pay the mortgage, maintenance, property management fees, insurance, and other miscellaneous fees. If you choose to sell, you have to think about the costs of agent commissions, home repairs, and closing costs, and again, other miscellaneous costs. Which costs sound more manageable and appealing to you at this point in time?
The Bottom Line
Coming to the decision of selling or renting your home can be a tricky one. There are many pros and cons to each option and ultimately, neither one is better than the other. You need to make the best decision for you and your family. To help guide you through these processes, ask yourself the previous questions to better understand which option may be the best fit for you, and as always, the Flash Realty Solutions team is here to help answer any questions you may have.
