How to Decide if You Should Sell Your House or Rent It?
If you are a homeowner and you are getting ready to move, you may be wondering what to do with your current home. Should you sell your house or rent it? Both options come with their own benefits and risks, as everything in life does. And there is really no way to tell you if you should sell your house or rent it without knowing your personal situation and many other factors because there is no one size fits all answer.
Instead, you will have to determine whether you should sell your house or rent it by considering the factors yourself, but we are here to simplify the process. This guide tells you what you should consider when making your decision.
Your Home’s Current Condition
Is your home in good condition or does it need major repairs? While basics like water, plumbing, and electrical issues need to be addressed before renting out your home, most other repairs are not a big deal to renters. The condition of your home matters much more to buyers than to renters.
If your home needs a good bit of work, you should probably rent it out. While renters live there, you can work toward saving the money for repairs so you can later put it on the market for a better price.
Your Location’s Current and Future Condition
Your home is not the only thing buyers consider. They also take a look at the neighborhood. You should pay attention to it, too. If the value of your neighborhood is going downhill with no sign of improvement, you may want to sell now. If you do not, the value of your home is likely to drop, netting you a much lower price.
If, however, the value of your area is improving- new homes being built, homes being repaired, new businesses opening close by- you may want to hang onto it a little longer. Rent it out for a while until the value has increased, and then you can sell it for a higher price.
The Profitability
Even if you own the home, the entire amount you earn in rent does not get to go straight into your pocket. There are fees and other associated costs of renting that should be considered when deciding if you should sell your house or rent it. If you still owe on your home, those costs increase. Here is a list of the most common possible costs when you rent out your home:
Property Taxes
These are not a new costs since you pay them the whole time you have the home, but you must calculate them into the amount you will be paying out if you rent your home.
Landlord Insurance
You need to protect yourself in case someone gets hurt on your property. Landlord insurance is generally up to 20 percent higher than regular homeowners insurance.
HOA Fees
Again, not a new fee. If your home belongs to a house or condo association, you already pay these fees. Just remember that you will still be paying these fees if you rent out the home.
Repairs and Maintenance
These will obviously fluctuate depending on the type of work and the amount of work needed. There is no way to determine the exact amount you will need, but you will definitely need money put to the side. You should also consider that when tenants move out, you will need to clean the place and probably paint the walls, at the very least.
Running Checks on Tenants
You will probably want to run rental background checks on potential clients to decide if it is a good decision or a bad one. You are looking at paying around $10 per report. This is not a huge cost if you find the right tenant in the first few applicants. It can add up, though, if you have to go through many applications before you find one with a good history.
If you still owe on your mortgage, you need to add in the mortgage payment and the mortgage insurance. Determine how much rent you could charge each month for your home. You can do this by checking other properties in your areas, check rental websites, or have a professional figure it out.
If the amount you can charge for rent will not cover all of the above costs, it probably is not worth renting. This should not be the only deciding factor, though. Maybe you cannot charge much in rent right now but the neighborhood’s property value is on the rise, meaning you can charge more later. If the profit you could potentially make in the future greatly outweighs the costs you will need to cover now, you will need to decide if you feel it is worth hanging on for a while longer.
Managing the Property
Not all costs associated with determining whether you should sell your house or rent it are financial. Some are more emotional, and some affect you in multiple ways. Here are some to consider:
Maintenance and Upkeep
We are not just talking about the cost here. We are talking about actually making it all happen. Are you capable of making the necessary repairs? Can you afford the time it takes to find the professionals you need? You can hire a property management company to handle all of this for you, but that is another cost you will need to figure in to your calculations.
Potential Evictions
Unfortunately, there is a chance that you will have to evict tenants from time to time. It is not pretty and no one wants to deal with it, but it comes with the territory of being a landlord. Are you capable of evicting someone? If you are a pretty soft person who can not bear the thought of kicking someone out- like me- being a landlord may not be the best move for you. That does not mean you cannot rent out property, just that you will need to hire a property manager to handle the ugly stuff.
Advertising
In between tenants, you will need to advertise that the house is available. There are plenty of free ways to advertise, so this only becomes a monetary cost if you choose for it to. The question is do you have the time? Do you really want to advertise? It is not that advertising is so difficult. It is simply that it is another thing to add to your to-do list. If you are already drowning in tasks, you may not want to add extra.
Length of Time You Lived There
Generally speaking, if you sell a home, you may be on the hook for up to 20 percent of the sale price for capital gains tax. However, if you have lived in the home for two of the last five years, you can usually exclude any sale that is less than $250,000.
So, the question is how long have you lived there? Not how long you have owned it, but how long you have physically occupied the home in the last five years. If it has been at least two years, you should be exempt from the capital gains tax. If not, this tax should play a role in your decision to sell your house or rent it. You might find it a better idea to rent it now and speak to accountants and financial advisors about other ways you may be able to save on a sale.
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Final Verdict - Should You Sell Your House or Rent It?
The truth is that it is up to you. There is no right or wrong answer, but you should consider your goal as it could play a major part.
Are you simply trying to decide what to do with your house since you are moving?
Are you trying to start a new income stream by renting?
Are you aiming to make the best profit?
Of course, making a profit is desirable, but if your main goal is really just to do something with your old home, the profit may not be the biggest factor. However, if you are looking to open a new income stream, the money would be a big factor. While the decision depends on your motive and so on, here are some tips to consider when trying to decide if you should sell your house or rent it:
Times Selling Is Wise
These are some indications that selling is probably the wiser choice:
Permanent Move
If your move is a permanent move, it may make more sense to sell it since you will not need it anymore. This is especially true if you are moving too far away to manage the property and cannot afford a property manager.
Good Housing Market
There are times when selling a home is the wisest choice because the housing market is great for sellers. This typically means that homes are selling very quickly and at excellent prices. In most locations, this happens during the spring and summer.
No Interest in Being a Landlord
Here’s the thing: Running any type of business, including being a landlord, comes with stress. If you would prefer not to deal with the headache and do not want to hire a property manager, go ahead and sell.
Renting Costs More
If you have added up all of the costs associated with renting and realized that it will cost more to rent it out than you will make from it, you should probably just sell it. Now, remember I said a moment ago that if you can probably charge higher rent in the near future, you may decide to rent for a while instead. Just remember that as long as the rental payments are lower than the costs of renting, you are paying for someone to live there. Anything the rental payments do not pay is coming out of your pockets.
Need a Down Payment
Another important factor when deciding if you should sell your house or rent it is whether you need money to move. If you need a down payment for your new home, you may need to sell your old one to get that money. However, you will still need somewhere to live while you are selling your home. You might be better off getting a personal loan for the down payment, moving, selling your old home, and then paying off the personal loan with the sale money. If you can stay with family or friends while you sell your house, you can probably afford to wait.
Cannot Afford Property to Be Empty
When you rent, there is always a chance that the property will be empty for some time in between tenants, even if it is only a month. When deciding if you should sell your house or rent it, you have to ask yourself if you can afford the mortgage payment and other associated fees while you are not receiving rental payments. If not, you should probably sell, instead.
Times Renting Is Wise
Sometimes it is wiser to rent out your home. These are signs that suggest you should rent instead of selling your home.
Moving in the Winter
Different locations have different “hot times” of the year for home selling and home buying options, but there are some foundational factors to consider:
Spring and summer are usually the best times to sell homes. This is the time of year that parents are looking to buy homes because they do not want to move their kids mid school year. The warmer and more pleasant months are also the time people are apt to get out looking for homes.
For a seller, this time of year typically means greater selling prices as there are so many buyers out house shopping. Demand is high, so prices rise. From about October and all throughout the winter, the numbers of buyers decrease. No one wants to get out in the cold, the school year has already started, and most people are focusing on the upcoming holidays. Houses that sell during this time usually go for much lower prices.
Property Needs Work
Again, the condition of your property can greatly impact the sell value of your home. If the property needs so much work that you could not get a good sale price, consider renting instead until you can make repairs. Have a professional come out and appraise your home in its current condition. They can tell you what would need to be fixed before you could get a good sale price.
Temporary Move
If your only moving for a period of time, say one year for a job, but will be returning after that year, you are better off just renting it out. That way, you still have somewhere to go when you get back. You do risk having some of your property damaged with tenants, but most tenants take care of the homes they rent. It is just important to understand that you may need to make repairs when you move back home.
Homes Are Appreciating
If homes are currently appreciating, you may want to rent yours out for while. Then, when the value has risen enough for you to make a decent profit- or at least get you out of debt with your mortgage- you can sell with better results.
Rental Price is Higher Than Mortgage
Sometimes, you can get high enough rental payments that you have plenty left over after mortgage payments and other costs. If that is the case, you can be bringing in a pretty penny while you rent your home out for a while. Imagine what you could do with your income if your old mortgage payment was paid by the tenants and you had $100 or more extra. If that extra money sounds good to you, consider renting instead of selling.
Finally, if you haven’t yet got a mortgage, and are just at the beginning of a house-buying process, below you can find the right one for you:
Conclusion
Deciding whether you should sell your house or rent it is a big decision that should not be taken lightly. You need to seriously consider how each decision could affect you and your family, and do not hesitate to seek professional advice if you are having a hard time deciding. Of course, there are no guarantees in life. It may seem like selling is the better choice now but you find out later it was not or vice versa. You cannot see the future, but if you make an informed decision with care, you will have nothing to regret.