Rent Your House or Sell It?
If you are thinking about leaving your old house behind for a different one – to upgrade, to downsize, to relocate, or for some other reason – you are probably thinking the same thing most people in your situation do: “Should I rent my house, or should I sell it?”
As with so many big decisions in life, there is no easy answer to this one. Renting out the home and selling the house each offer advantages and potential drawbacks that you must weigh carefully before deciding.
There can be pros and cons to both selling or renting your home. Let’s take an in-depth look at the considerations for both. The decision to sell or rent will become more apparent after reading.
You should be able to take the best option for your particular situation.
Which of these options is best will depend on some factors. You should consider each of them and weigh them against your personal preferences to determine which is right for you.
Let’s take a look at what you need to know about selling or renting.
Things to Consider About Renting Your Home
1. Will Renting My House Be Profitable?
You need to know if renting out your home will generate positive cash flow or if it will slowly (or quickly) suck you dry. You determine this to add up all the expenses of renting out the home and subtract them from the money you will make from being a landlord (and the tax breaks you will get).
Expenses when renting a home:
- Mortgage – calculate both the principal and interest into the equation.
- Insurance – Almost every year, insurance rises. Keep this in mind.
- Repairs – repairs are almost a certainty. Remember Murphy’s Law.
- Taxes – In most areas, taxes don’t go down.
- HOA fees may or may not apply to your circumstances if there is no HOA for your neighborhood.
- Management fees – (if you hire a property manager).
- Vacancies – don’t expect to maintain full occupancy the entire time.
- Real Estate Commission – are you going to be paying a real estate agent to rent the property? Agent fees are generally between a half month and months rent.
- Advertising – if you are renting your property without using an agent, don’t forget about advertising expenses.
- Miscellaneous – don’t forget about other more minor expenses like credit checks on tenants.
Your expenses may vary, and keep in mind that you can find rental calculators that are much more sophisticated than this simple method.
You will have to do some educated guesswork on what your rental income will be. You can look at rental sites and get a general idea of what rent is in your area. Consulting a local real estate agent who handles rentals would also be prudent.
It would help if you also considered long-term rent prices. Will they go up or down? In most places, rental prices have been going up, much like real estate values. Most people trying to decide between renting or selling a home are looking to have a positive cash flow. Will this be the case while renting your home?
2. Hiring a Property Manager Can Eat Into Your Profit
When moving to a different city, hiring a property management company is usually a good idea, especially when you’re moving far away. Rental properties can be challenging to manage when you’re not around the area.
What you need to remember, though with a rental home comes additional costs. Property management fees can eat into your potential profits. Depending on the local market, you can plan on paying around 10 percent of the monthly rent to the property manager.
The monthly profit might not be what you would like to get. Hiring one of the local property management companies might not be an expense you can afford at this time.
3. Are You Okay With Being a Landlord?
Rental ownership is often stressful because you have so little control over what tenants do in your home. You may get great tenants that pay rent on time and respect the property. Or you may get tenants that never pay rent on time and wreck the place.
Even if your tenants are decent, you will still deal with the stress of needing to answer their phone calls, keep up with maintenance, etc. Let’s face it, being a landlord can be hard work.
Do you have the stomach to chase problems like late rent or deal with the water heater that gave out in the middle of the night?
As mentioned, you can always hire a property manager, making your life much more comfortable if you have a good one. They can save you from doing a lot of work.
Even if you get the best tenants, you can expect that you’ll probably need to do some painting and maybe carpet replacement when they leave. It is quite unusual that a tenant will maintain your home as you would.
Check out these great tips for being a landlord if you decide renting is the best way to proceed.
4. Are You Coming Back?
If you are relocating, renting can provide some security because you know you can return home. Selling a house and then buying another home incurs costs, so it may be cheaper to rent out your house and move back in when you return.
Quite often, folks who are not sure where their lives are taking them will hold onto their property.
Renting allows them to do that while keeping the option open to selling in the future. Sometimes the choice to sell or rent a home isn’t just about finances but of life decisions.
5. Is The Market Going up in The Future?
Some housing markets seem to be almost guaranteed to get stronger in the next few years. If you are in such a real estate market and feel like there is a good chance your home will increase in value significantly, then renting will let you keep it, pay the mortgage and realize a bigger payday down the line.
Your home’s value should be a significant factor in your choice of renting out or selling your home. Making an informed decision should include analyzing your current home value vs. where it’s expected to be in a few years.
A top real estate agent should be able to help you analyze the local housing market to determine if home prices are expected to be higher. While no agent has crystal balls, there should be factors that point to the local market heading in one direction or another.
Maybe there are home improvements that you know you’ll need to make but don’t have the money right now? If this sounds like the case, renting could be a good option. Renters are not like buyers because they will accept specific improvements that need to be made. Buyers, on the other hand, can often be pickier.
6. Don’t Forget About Taxes.
If you are fortunate to have excellent cash flow from your rental, don’t forget about the tax consequences! Like any other income-producing asset, you will be taxed on any income you get from your rental at your ordinary tax rate.
Property taxes are another expense that can eat into your profits.
Keep in mind; however, you can write off all the costs associated with renting your home. For example, if your gross rental income for the year is $45,000, but you incurred $30,000 in rental expenses, you will only be taxed on $15,000.
In addition to deducting regular expenses, you can also claim a deduction for depreciation on the property as well. Further, if you have a rental loss, it’s possible you can use the loss to offset some of your income if your adjusted gross income is less than $150,000.
Always speak with a tax professional for more details on deducting any losses or depreciation. Tax deductions should always be factored into whether selling or renting a home is the better option.
7. Did You Ever Want to Have a Rental Property?
Are you someone who has always wanted to own a rental property? If this sounds like you, renting your own home could be a great way to put your toe in the water. Maybe you will discover you love it. If so, you could have the confidence to acquire more properties in the future.
On the other hand, you may find out having a rental property is something you despise. Finding out with a home you already own allows for trial and error.
While renting your primary residence might be a bit different, it does allow you to learn the rental process. You will need to make sure you brush up on any local laws that are crucial to know. A real estate agent or attorney can help with this.
Things to Consider About Selling Your Home.
1. You Get to Walk Away After The Sale.
There is something to be said about the freedom that comes from unloading a significant investment in your current home. All of the burdens that come from renting your home out are avoided by selling your current property instead.
Selling your primary residence is still stressful, and there will be work involved, but you get a check for your home and move on when it is all over.
If you are relocating to another state, selling can be even more beneficial. People do not realize the emotional burden of having two homes until they experience it. Having to deal with rental problems in the middle of the night while in another state is not pleasant.
A home sale frees you from that kind of burden. There will be no second home to worry about!
2. You Can Escape a Dropping Real Estate Market.
If you feel that your local real estate market will go down the drain in the coming years, it makes sense to get out now. A seller’s market will not last forever. Current trends are unlikely to remain the same when the real estate market has continuously gone up for many years.
Selling your home allows you to generate as much income as possible from it and much more revenue than you would if the market does drop out in the next few years.
Of course, you can’t adequately predict what will happen, so you may be wrong about the future. Who knows if there will be a housing bubble or not. But if you feel like you are right, selling makes sense. By having the equity from your home, you’ll be able to invest that money and hopefully make more.
By renting, you could be tying up money that could be used towards a lucrative investment. Will your financial situation be better without having what will become an investment property?
3. You Can Take Advantage of Current Tax Laws.
Right now, selling your home lets you take advantage of current tax laws that exclude your sale from capital gains tax up to $250,000 on your own, or $500,000 if you are married. Limitations depend on your tax bracket, but the current law means they get to avoid a reasonably sizable tax on a huge sale for most homeowners. It is one of the best tax benefits of owning a house.
Tax deductions should play a substantial role in the decision to rent or sell.
Requirements change, which means this law could change.
By selling now, you know you get to use the current law to your advantage. If you have a lot of equity, this tax law could save you quite a bit of money. You may, in fact, end up doing the happy dance because of it!
If your current home is no longer your primary residence because you have gone ahead and bought a new home, the tax implications will be different. Capital gains taxes will change because the home becomes no longer a primary residence and becomes an investment property.
It will be vital to know whether you pay capital gains tax on your second home. Taxes should always be an essential factor in the decision process. Everyone’s personal circumstances are different, but income tax is usually a biggy.
Remember, the laws will be different for married couples vs. single filers when it comes to taxes.
4. You’ll Have a Down Payment (and Maybe Much More) For Your Next Home.
One of the biggest reasons people choose to sell instead of renting out their home is that it gives them a significant cash injection to cover the down payment on their next house. Having a substantial down payment puts you in a much better financial position to purchase a home you want in an area you prefer to live in.
If your credit is not the best, having a substantial down payment can help you purchase a different home.
5. You Won’t Have Tenants to Worry About.
Depending on your personality, having strangers in what is probably your most substantial investment – strangers who could destroy that investment – might be too much to deal with. If you cannot stop thinking about what might be happening, you will not enjoy your life. Not to mention all the other stresses that come from owning a rental, like paying for all repairs and maintenance costs.
Repair costs can hurt financially because they are not tax-deductible expenses.
If you sell, you will not have to worry about any of these things. You will have gotten the money for your investment, leaving the current owner to worry about what happens to the house.
When thinking about renting or selling a home, dealing with tenants is always one of the most important considerations.
The Rent to Own Compromise
Sometimes the decisions between renting and selling a house can be excruciatingly difficult. Could there be a compromise that could end up being the best of both worlds? Maybe? One possibility is renting to own. Perhaps you would love to move somewhere else and generate some income at the same time. You might not be ready to give up the home you have an emotional attachment to.
Offering a rent to own home could kill two birds with one stone. You get your home rented now and eventually have a buyer at a specified time in the future. It could be a real win-win. When thinking about should I sell or rent my house, this could be the perfect solution.
If you can’t decide whether you want to rent or sell the house, this option could be something to consider.
Reconsidering Renting or Selling a House
Sometimes when deciding between selling or renting a home, people make the wrong choice. More often than not, there will be a decision to rent the house that is later regretted. It is not unusual at all for the experience of renting not to be an enjoyable one.
When this happens, and you decide it’s time to move on, you’ll need the best tips for selling a home with tenants. Trust me. This is no picnic!
One of the most challenging ways to sell a home is when tenants are occupying a property. Just think for a minute. A tenant is comfortably living in a home, and you want to disturb that. It is not out of the ordinary for a tenant to be uncooperative when it comes to showings.
In my thirty-four-plus years of selling real estate, there have been numerous times where tenants have been a royal pain in the neck. In the reference above, you will find my best advice for dealing with them. Don’t take selling a home with tenants lightly.Everyone thinks their tenants will be cooperative until the for sale sign hits the lawn and they're not!Click To Tweet
Final Thoughts on Renting vs. Selling a House
Deciding between renting and selling a house is not something that should be taken lightly. You are making a significant life decision. Hasty decisions are made quite often without thinking through the pros and cons of renting vs. selling. Hopefully, the information that was just presented will help you make an excellent choice for your life circumstances.
The choice between renting or selling a home often boils down to an individual’s unique circumstances. Which is the better choice is now up for you to decide.
Additional Home Selling Articles Worth Reading
- Does paying off your mortgage make sense – should you pay off your mortgage before retirement? See some of the most common considerations to help make a sound decision.
- Knowing about fair housing laws – when selling or renting a house, it is vital to understand fair housing laws fully. See what you need to know.
- How does rent-to-own work for sellers – get valuable insights on what you need to know about rent-to-own properties.
- Add curb appeal when selling a home – Whether you are renting or selling your home, one of the most vital things you can do is have outstanding curb appeal. Get some helpful guidance.
Use these additional resources to make wise decisions when you are renting or selling your house!
About the author: The above Real Estate information on the should I sell or rent my house was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at email@example.com or by phone at 508-625-0191. Bill has helped people move in and out of many Metrowest towns for the last 34+ Years.
Are you thinking of selling your home? I have a passion for Real Estate and would love to share my marketing expertise!
I service Real Estate Sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge MA.