Should you sell or rent your house? This is a question that any homeowner will have to ask him or herself at some point in time.
Because the only thing constant in life is change, there is a big chance that your current house will not suit your needs forever. You may need to relocate because of work or require a bigger space once your family starts to grow. When that time comes, you will then need to come face to face with two important things: the need to find a new home, and deciding between having to sell or rent out your current one.
Sell Or Rent? Some Factors You Should Consider
There are plenty of factors to consider when selling or renting out your home, and these include:
Seems like a lot of things to cover, but don’t worry. We’ll go through all of this step by step to help you make the best decision based on your current situation.
Why you need to move
The first thing you need to ask yourself is: why do you need to move? And if that’s the case, is this move going to be permanent? If you’re being moved temporarily because of work, then it may be wiser to rent your house out and move back in once you return. This is a cheaper option than having to sell your current home, pay for sales commissions and other expenses, and then go through the hassle of having to purchase a new one when you come back. If you know that the move is going to be permanent, then selling would very likely be the better option.
Your financial situation
One reason why most people sell their old homes when buying a new one is that they need the profit from the sales to fund their next purchase. If you can come up with enough money to put as down payment for your next home without having to sell your existing one, then you may choose to keep it.
Your house’s condition
Your current home condition also comes into play when deciding to sell or rent your house. If your current home is old or dilapidated, or requires a few repairs here and there, then you may need to spend money and invest in home improvement before you decide to sell it. Renters however, have the tendency to overlook outdated fixtures or areas requiring slight repair. If you do not have the money to invest in home improvements, then renting it out may be a better choice.
Current and projected home prices
Another factor to consider when you sell or rent is how much your house is worth and how much it might be in the future. If you’re not satisfied with the your home value at the moment, then you may consider renting the house out while waiting for the value to rise. This is a good idea if you have studied the market well enough and have seen that area are appreciating.
Expenses you might incur
The best scenario you would hope to have when renting out your home is that it gets rented out most of the time. That way, you’ll get to cover most (if not all) of your mortgage payments. This is the best case scenario, but you also have to prepare for the worst care. This is when you won’t be able to rent it out, and you’ll end up paying double mortgages for both your rental and personal home.
Whether you rent out your home or not, you will still incur extra expenses for things like maintenance, insurance, advertising, accounting and legal fees. At some point, you may also come across some issues like having to deal with a tenant who does not pay rent or causes significant damage to your home. If this is the case, you may end up failing to profit from the rent or having to shell out extra money for attorney fees, court fees, cleaning expenses and repairs.
Your readiness to become a landlord
Being a landlord takes time and effort. You’ll be responsible for advertising and showing your home to potential renters. You’ll also need to run background checks and eventually – handle complaints in case maintenance issues arise. Another thing you will also need to consider is managing your home rental remotely, especially if you will be relocated.
If you’re not up for being a hands-on landlord, you can hire a property management firm to do the work for you, but expect to be charged at least 10% of your rental profit. If you plan to move locally, then you may be able to do all of these things on your own without having to hire a property management firm.
Taxes on rental income
Just like your salary from your day job, you need to pay tax from any income you derive from your rental. What’s good to note is that you can deduct all costs associated with renting the house (advertising, hiring a property management firm, legal and accounting fees, maintenance costs and the like), so you’ll only be assessed tax on the actual profit that you make. This is something worth considering when calculating how much you’ll totally earn on a yearly basis if you decide to sell or rent your home out.
State laws on rental
Each state has its own laws on renting, while many cities also have local ordinances that will govern tenant eviction, increase in rent, deposits and access to the rental property. This will definitely affect the profitability of your house rental. Because the laws depend on each state, I would recommend you read more about it to find if it favors you as a future landlord.
The final verdict
Renting a house is definitely an investment strategy – and like everything else, it entails risks. Depending on the factors above, your property can provide you with a good return on investment, or you may end up not making profit from it at all. Either way, it is important that you have enough money in the bank to cover your needs when emergency situations arise. Also, it would be good to do your research ahead of time and have all your options covered. Speak to a financial planner regarding your financial position, and of course, you can also contact me so we can talk about your house-selling options.