Should I Sell My House or Rent it Out?
If you are thinking about leaving your old house behind for a different one – to upgrade, downsize, relocate, or for some other reason – you probably think the same thing most people in your situation do: “Should I rent my house or 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.
You should be able to choose the best option for your particular situation.
Which of these options is best will depend on some factors. You should consider them and weigh them against your preferences to determine which is right for you.
From many years of experience as a Realtor, to make the best decision it is essential to know the demand for both the selling and rental market. You should weigh your needs, responsibilities, goals, and interests before making a final determination.
Let’s take an in-depth look at the considerations for both. The decision to sell or rent will become more apparent after reading.
Facts and Statistics For Consideration
1. Renting a house allows for ongoing income while selling provides a lump sum of money.
2. Factors to consider include current market conditions, financial goals, and personal circumstances.
3. Renting may require more maintenance and management responsibilities compared to selling.
4. Selling a house can offer a sense of closure and allow for a fresh start in a new location.
5. Ultimately, the decision should be based on individual preferences, long-term plans, and financial considerations.
6. On average, homeowners who choose to rent out their property earn a rental income that ranges from 4% to 8% of the property’s value.
7. Approximately 62% of homeowners who decide to sell their house end up making a profit within the first year of selling.
8. The demand for rental properties has increased by 21% in the past five years.
9. Renters typically stay in a rented property for an average duration of 3 to 5 years.
10. Homes that are priced competitively for rent tend to get rented within an average of 30 days on the market.
Things to Consider About Renting Your Home
Let’s examine some of the most crucial considerations for renting your house.
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 by adding up all the expenses of renting out the home and subtracting them from the money you will make from being a landlord (and the tax breaks you will get).
Expenses When Renting a House
Here are the expenses you need to consider when renting out your home.
- Mortgage – calculate both the principal and interest into the equation.
- Insurance – Almost every year, home insurance rises. Keep this in mind.
- Repairs – repairs are almost a certainty. Remember Murphy’s Law.
- Taxes – In most areas, property tax assessments 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 – will you pay a real estate agent to rent the property? Agent fees are generally between a half month and a month’s rent.
- Advertising – if you rent your property without an agent, don’t forget about advertising expenses.
- Miscellaneous – don’t forget about other minor expenses like tenant credit checks.
Your expenses may vary, and remember that you can find rental calculators that are much more sophisticated than this simple method.
You will have to do some educated guesswork on your rental income. 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? Rental prices have increased in most places, much like real estate values. In most cases, rental demand it likely to be high.
A careful analysis should be done to help your decision.
Most people deciding between renting or selling a house want 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 moving far away. Rental properties can be challenging when you’re not around the area.
What you need to remember, though, is that with a rental home comes additional costs. Property management fees can eat into your potential profits. Depending on the local market, you can pay the property manager around 10 percent of the monthly rent.
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 now.
Examine the current rents vs. landlord expenses carefully. With these services you could see your return shrink considerably.
3. Are You Okay With Being a Landlord For a Rental?
Rental ownership is often stressful because you have little control over what tenants do in your home.
You may get great tenants who 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 answering their phone calls, keeping 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.
Unusually, a tenant will maintain your home as you would.
4. Are You Coming Back to The Area?
If you are relocating, renting can provide 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.
Often, folks unsure 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, choosing to sell or rent a house isn’t just about finances but life decisions.
5. Is The Real Estate Market Going up in The Future?
Some housing markets are almost guaranteed to strengthen in the next few years. If you are in such a real estate market and feel there is a good chance your home will increase in value significantly, renting will let you keep it, pay the mortgage, and realize a bigger payday.
Your home’s value should be a significant factor in 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.
What is the market like now? Is it a buyer’s or seller’s market?
Maybe there are home improvements that you know you’ll need to make but don’t have the money for 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 The 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.
Remember, however, you can write off all the costs of renting your house.
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. Further, if you have a rental loss, you can use the loss to offset some of your income if your adjusted gross income is less than $150,000.
Always consult a tax professional for more details on deducting losses or depreciation.
Tax deductions should always be factored into whether selling or renting a home is better.
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 house could be a great way to put your toe in the water.
Maybe you will discover you love it. If so, you could be confident in acquiring more properties.
On the other hand, you may find out that 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 must ensure you brush up on any local laws that are crucial to know. A Realtor or real estate lawyer can help with this.
Things to Consider About Selling Your Home.
Let’s examine some considerations for selling your house instead of renting.
1. You Get to Walk Away After The Sale.
Something is to be said about the freedom from unloading a significant investment in your current home. All the burdens of renting your home out are avoided by selling your existing property.
If fetching an excellent price is your primary consideration, selling could make perfect sense.
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 over.
If you relocate to another state, selling can be even more beneficial. People do not realize the emotional burden of having two homes until they experience it. They have to deal with rental problems in the middle of the night while in another state is unpleasant.
A home sale frees you from that kind of burden. There will be no second home to worry about!
2. You Will No Longer Have Mortgage Payments.
By selling your property, you will no longer be saddled with a monthly mortgage payment. The lender will be paid off. You’ll be able to decide whether puchasing another home makes sense.
3. There Will Be No Worries About Upkeep.
One of the potential drawbacks of holding onto a home is the constant upkeep. When you sign a lease, you’ll be responsible for the maintenance with the property.
Landlords will be responsible for maintaining the condition of the home. If something needs attention, you will be required to fix it. Unfortunately, most houses will need repairs or improvements.
Ask yourself questions like “how old is the roof?” “Is the HVAC old and could potentially need replacement?” Holding the house increases your risks of expenses such as these cutting into your profits.
You avoid all these issues when selling.
3. You Can Escape a Dropping Real Estate Market.
If you feel 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 will unlikely remain the same when the real estate market has continuously increased for many years.
You could find that a buyer’s market is on the horizon sooner than expected.
Selling your home allows you to generate as much income as possible and more revenue than you would if the market drops 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.
You can invest that money and hopefully make more by having the equity from your home.
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?
4. You Can Take Advantage of Current Tax Laws.
Currently, selling your house lets you take advantage of current tax laws that exclude your sale from capital gains tax up to $250,000 if single 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 massive sale for most homeowners. It is one of the best tax benefits of owning a house.
Tax deductions should play a substantial role in renting or selling.
Requirements change, which means this law could change.
By selling now, you know you can use the current law to your advantage. If you have a lot of equity, this tax law could save you a lot of money. You may end up doing the happy dance because of it!
The tax implications will differ if your current home is no longer your primary residence because you bought a new one. Capital gains taxes will change because the home is no longer a primary residence or 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 circumstances are different, but income tax is usually a biggy.
Remember, the laws regarding taxes will be different for married couples vs. single filers.
5. 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 rent out their house is that it gives them a significant cash injection to cover the down payment on their next home.
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. If mortgage rates are projected to rise you might also want to look in an attractive rate now.
The interest rates can impact what you’ll pay for a home over the long term, so it can make a significant difference.
6. You Won’t Have Tenants to Worry About When Selling.
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.
You will not enjoy your life if you cannot stop thinking about what might happen. Not to mention all the other stresses of 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 these things. You will have gotten the money for your investment, leaving the current owner to worry about what happens to the house.
When considering renting or selling a house, dealing with tenants is always one of the most important considerations.
7. You Will Have Costs to Sell Your House
One of the factors that could influence your decision to sell or rent your house is the cost. It would be best if you did numerous things to prepare your home for the market.
Most sellers will consider staging their homes for sale to get top dollar. Doing so could include hiring a junk removal company or renting a storage unit. These are costs you may want to factor into your decision.
Perhaps the most significant expense will be paying your Realtor’s commission. You can expect to pay 5-6% commission of the home’s sale price in most areas.
Commissions will be part of your seller’s closing costs, including paying a real estate attorney and potentially tax stamps.
How will your bottom line look like when all is said and done?
The Rent-to-Own Compromise
Sometimes, 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 simultaneously. You might not be ready to give up the home you are emotionally attached to.
Offering a rent-to-own home could kill two birds with one stone. You rent your house now and eventually have a buyer at a specified time. It could be a real win-win. This could be the perfect solution for selling or renting my house.
If you can’t decide whether to rent or sell the property, this option could be worth considering.
Pros and Cons of Renting a House
Pros
- Continue to build equity in your property.
- It is better to hold onto the house if it is a buyer’s market.
- You have a monthly rental check coming in.
- You might have tax right-offs.
Cons
- It can be challenging being a landlord at times.
- There are always unexpected costs, like needing to replace the heating system.
- You can get the wrong tenants who don’t treat the home well.
Pros and Cons of Selling a House
Pros
- You can get an influx of cash.
- There will no longer be a need to manage a rental.
- You can take advantage of favorable tax laws.
Cons
- You could lose money if the timing isn’t right.
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 occupy a property. Just think for a minute. A tenant lives comfortably in a home, and you want to disturb that.
It is not unusual for a tenant to be uncooperative regarding real estate showings.
In my thirty-seven-plus years of selling real estate, there have been numerous times when tenants have been a royal pain in the neck. My best advice for dealing with them is in the reference above. 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 TweetFinal Thoughts
Deciding between renting and selling a house should not be taken lightly. You are making a significant life decision.
Hasty decisions are often made without considering the pros and cons of renting vs. selling. Hopefully, the information presented will help you make an excellent choice for your life circumstances.
Choosing between renting or selling a home often depends on an individual’s circumstances. Which is the better choice is now up to you to decide.
FAQs
Here are frequently asked questions when selling or leasing a house with answers.
Is it More Profitable to Rent or Sell My Property in The Current Market?
In the current market, the decision to rent or sell your house depends on various factors. While selling your house may provide you with a lump sum of money upfront, renting it out can offer long-term financial benefits.
Renting allows you to generate a steady stream of passive income, which can be particularly advantageous if the rental demand in your area is high.
Additionally, by holding onto your property and becoming a landlord, you have the potential to benefit from future appreciation in real estate values.
However, it’s crucial to consider factors such as maintenance costs, vacancy rates, and the responsibilities associated with being a landlord before making a final decision.
How Do I Determine The Rental Value of My Property?
Determining the rental value of your property involves considering various factors. Research the current rental market in your area to understand the demand and average rental prices for similar properties.
Next, assess the unique features and amenities of your property that could make it more desirable, such as location, size, condition, and any recent renovations.
Consider the prevailing economic conditions and demographic trends that may impact rental demand.
Finally, consult with local real estate agents or property management companies who have expertise in your area to get their insights and recommendations. By carefully analyzing these factors, you can arrive at a competitive rental value for your property.
What Are The Risks Associated With Being a Landlord?
Being a landlord certainly comes with its fair share of risks. One of the main risks is the potential for troublesome tenants who may cause damage to your property or fail to pay rent on time.
There is always the possibility of legal disputes arising from lease agreements or tenant complaints. Another risk to consider is the fluctuating real estate market, which can impact the value of your property and potentially lead to financial losses.
Lastly, unforeseen maintenance and repair costs can also pose a risk to landlords. However, by conducting thorough tenant screenings, maintaining open communication with tenants, and having a contingency fund for unexpected expenses, these risks can be mitigated to a great extent.
How Do I Determing The Market Value of My Home if I Want to Sell It?
Determining the market value of your house is a crucial step when deciding whether to sell or rent it. To accurately assess the value, you can employ a combination of methods.
Consider having agents conduct a comparative market analysis (CMA) by examining recent sales data of similar properties in your area. This will provide insights into the current market trends and housing inventory. It will help gauge the demand for houses like yours.
Consulting with a professional real estate appraiser can provide an expert opinion on your property’s value based on its condition, location, and other relevant factors.
Lastly, utilizing online valuation tools that utilize advanced algorithms can offer a rough estimate of your house’s worth.
About the Author: Bill Gassett, a nationally recognized leader in his field, provided information on should I rent or sell my house. He is an expert in mortgages, financing, moving, home improvement, and general real estate.
Learn more about Bill Gassett and the publications he has been featured in. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of Metrowest towns for the last 38+ years.
Are you thinking of selling your home? I am passionate about real estate and love sharing 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, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge MA.
