March 26th, 2018 1:26 PM by ERA Big Sun Realty
Should I Rent or Sell My House
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 making a decision.
There can be pros and cons to both selling or renting your home.
Rent Your House or Sell It?
Which of these options is best will depend on some factors. You should consider each of them, and weight them against your personal preferences, to determine which is best for you.
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. The way you determine, this is 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:
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.
You should also consider 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 who are trying to decide between renting or selling a home are looking to at least have some positive cash flow. Will this be the case while renting your home?
2. 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.
You can always hire a property manager, which if you have a good one makes your life much more comfortable. But there is a cost (usually about 10% of your rental income).
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 this is the way you are leaning.
3. Are you coming back?
If you are relocating, renting can provide some security because you know you can come back to your 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 quite sure where their life is 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.
4. 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 market, and you 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.
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 in the sense they will be accepting of specific improvements that need to be made. Buyers, on the other hand, can often be pickier.
5. Don’t forget about taxes.
If you are in the fortunate position 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.
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’re only assessed tax 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.
6. Did you ever want to have rental property?
Are you someone who always wanted to own a rental property? If this sounds like you, then 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 rental property is something you despise. Finding out with a home you already allows for trial and error.
Things to consider about selling your home.
1. You get to walk away after the sale.
There is something to be said for the freedom that comes from unloading a significant investment in your home. Every one of the burdens that come from renting your home out is avoided by selling it instead. Selling is still stressful, and there will be work involved, but when it is all over you get a check for your home and get to move on.
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.
2. You can escape a dropping market.
If you have a feeling that your real estate market is going to go down the drain in the coming years, it makes sense to get out now. 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 it is possible you are wrong about the future. 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 possibly tying up money that could be used towards a lucrative investment.
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 are depending on your tax bracket, but for most homeowners, the current law means they get to avoid a reasonably sizable tax on a huge sale. 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!
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 because it gives them a significant cash injection – enough to cover the down payment on their next house. Having a big down payment puts you in a much better financial position to purchase a home you want in an area you prefer to live.
5. You won’t have tenants.
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 are not going to be able to enjoy your life. Not to mention all the other stresses that come from owning a rental, like having to pay for all repairs and maintenance.
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, having to deal with tenants is always one of the most important considerations.
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 at all for a tenant to be uncooperative when it comes to showings.
In my thirty 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.
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