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The decision to sell or rent your home is a difficult one. On the one hand, you could sell and you’re done! On the other hand, recurring rental payments sure sound tempting.
Read on to learn more about the key considerations that should influence your decision.
Reasons for Selling Your Home
Here are some scenarios when it makes sense to sell your home.
You are not associated with the property
People tend to become emotionally attached to real estate. If you don’t feel this attachment, it will be a lot easier to let go.
Here are some examples of low attachment situations:
- You’ve only lived there for a few years
- You no longer enjoy the surrounding neighborhood
- You recently divorced
- You feel the urge to try a different lifestyle (e.g. moving to the city, the country or abroad)
If you have a “Whatevs” attitude about your current home, now may be a good time to think about bringing it to market.
You’re short on cash
If you are in need of money and are ahead of the curve in your home investment – which means you have gained some equity and profit from it – it can be a good idea to sell.
This is a great way to free up cash for the down payment and closing costs of your next home. Alternatively, you can pay off debts or save on the profits.
The house is not ideal for renting out
Not all houses are ideal as rental apartments. Often times, the location of the house makes it difficult to rent out in the market. For example, it might be in the middle of nowhere or in a city that people don’t flock to.
You have significant equity
If you have significant equity in a home and sell it, you can make a pretty nice profit after the deal is closed. On the other hand, if you have barely run down your mortgage balance, you are likely to lose money selling it.
You want to reduce your expenses
Homeownership can be very expensive depending on where you live. If you find yourself in a situation where all of your extra money is going to be used towards paying taxes and maintenance bills, it might be time to sell.
Tips for Selling Your Home
Here are some things to keep in mind when trying to sell your home.
Hire a great agent
When it comes time to sell your home, your real estate agent is your best lawyer. Your agent will help you decide when is a good time to advertise your property, what a competitive price is, and how to stage it.
Your broker will also connect you with trusted contractors, lawyers, and inspectors that you may need to involve during the sales process.
Be realistic about the price
Talk to your agent about market conditions and stick to them when negotiating. Selling can be difficult and the value of your home will fluctuate based on demand and market conditions.
It is best to listen to the experts instead of taking matters into your own hands. Overpricing your home or putting off a sale in the market can be costly.
Let the agent stage the house
Once you have decided to move on with your home sale, treat it like someone else’s house. The agent may want to redecorate and you will need to keep the place in pristine condition for walkthroughs.
Be patient during this process and work with the agent on staging. It could lead to a bigger profit.
Selling pros and cons
- Potential net profit
- No monthly maintenance
- Give away a property that you don’t want
- Potential net loss
- Sale of fees
- No recurring income
Reasons to rent your home
Here are some reasons why renting out your home can be cheap.
The property is in a rentable location
If your home is in a fantastic location, it might be worth renting for strong monthly cash flow.
For example, your home might be near a ski resort or in a city that has a constant influx of visitors in need of accommodation. If so, you can request a rental price that will cover the cost of your mortgage and a few more.
You can afford a second home
It’s a good idea to analyze your monthly cash flow and see if you can afford to take out a second mortgage.
If so, consider refinancing your current property or using it as collateral on your next mortgage. This plan could work as long as your tenants’ monthly rental payments cover your mortgage payments.
You may want to retire
If you have the opportunity to return to your old home, the first thing to consider is renting it. Renting a home can give you the opportunity to come back if you so choose.
You can afford the costs
Homeowners are often surprised to learn some of the hidden costs associated with renting out. To be successful in renting out your home, you must be able to cover a wide variety of costs. Ideally, the rent payments from your tenants take care of them for you.
Here are some of the top costs to consider.
- mortgage: You still need to make your monthly mortgage payment.
- HOA fees: Homeowners Association (HOA) fees can be very high, costing hundreds of dollars or more per month.
- insurance: Some people have to pay for home insurance in addition to personal mortgage insurance (PMI) to protect the lender.
- Job offers: Vacancy occurs when a space is not occupied. It can be worthwhile to find out about homeowners insurance.
- Property management fees: Property managers can help you with leasing, tenant problems, and daily maintenance and repairs – for one price.
Tips for renting out your home
Here are a few different ways to make money renting your home.
Check out Airbnb
If your home is in a prime location, you may have more flexibility with placing it on a website like Airbnb than with a real estate agent. Airbnb is easy to use, even though the site takes a commission.
Rent different parts of your home
You can potentially make more money by dividing your home into several smaller rental options.
For example, you can put rooms on Airbnb or rent storage space in the basement, attic or garage. Courtyard space can be rented to local boat or jet ski owners. You can even rent your driveway to neighbors who need more parking space.
Use a property management service
Maintaining a rental home can be a full time job. Many property owners choose to hire a property manager to handle services such as renting, servicing and maintenance.
If you are looking for a profitable and practical approach to renting, this route should be considered. This is especially important if you decide to rent out multiple properties. Managing a property or two is hard enough. Anything beyond that can become a full-time job.
Advantages and disadvantages of renting
- Possibility of generating passive rental income
- You can withdraw a day if you want
- Tenants pay off their mortgage
- Can build your wealth
- Monthly and unexpected costs can be high
- Bad tenants can be a big problem
- No immediate net profit potential
How to convert a home into an investment property
If you decide to become a landlord, there are a few steps you need to follow to turn your home into an investment property:
Refinance if you can
If you still owe money on your home, speak to your mortgage lender and decide whether a refinance is a good idea. In some cases, refinancing can reduce the financial burden of owning two properties.
Update your insurance policy
Talk to your insurance company before renting. Not all plans cover tenants, and you don’t want to take them into account in the event of a disaster.
Contact a property management company
Take a look around and get some quotes from property managers. Look for a company that charges a fair price for comprehensive care. Tenant screening services are also a must. By avoiding tenants with poor credit ratings, you reduce your chances of an eviction.
Prepare the property for rental
Spend some time cleaning and updating the property to prepare it for tenants. Set your prices, draft some ownership rules (such as whether smoking or pets are allowed), and take quality pictures for listing on public websites.
frequently asked Questions
When is the best time to sell real estate?
This can vary from location to location. But in general, the best time to sell a home is either May or June. Check with your real estate agent about what they recommend for your particular property. Every house and every place is different.
Is Renting a Home a Good Investment?
Renting real estate can be immensely profitable, but not in the short term. That’s because the bulk of your rental check goes to the lender until you’ve paid off your mortgage. Once you have 100 percent equity in your home, the real profits will start pouring in.
Can renting an apartment bring tax advantages?
As a landlord, there are many things that you can write off on your tax return. For example, upgrades and repairs are usually tax deductible. You can also apply for depreciation credits – the depreciation of your home over time.
It is best to speak to a tax advisor who can best advise you on tax deduction options for rental properties.
What is capital gains tax?
Capital gains tax is a tax levied by the state on certain types of assets when they are sold for a profit. If you sell your home for more than $ 250,000 above your purchase price, you owe capital gains tax.
But there are ways to avoid paying. In this area too, you should definitely hire a qualified tax advisor or lawyer who will guide you in the right direction.
The bottom line
The decision to sell or rent your primary home can be stressful. The housing market is difficult to time and it is common to feel pressure to do something one way or another.
Before selling or renting out, think carefully and do what is best for your personal financial situation and life goals. Talk to a real estate agent, see your monthly cash flow, and evaluate the local market.
You can always try renting out your home for a while. If it doesn’t work, you can sell at this point.
This is how you can find the right path for you and your family and use real estate to build up your wealth.