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Should I rent or sell my house?

If you’re hoping to relocate, you’ll face the dilemma of what to do with your current house. 

Depending on your financial situation and the state of the housing market in your area, each option has advantages and disadvantages. 

On the one hand, selling seems like common sense in today’s housing market—there’s plenty of incentive to sell right now, with low-interest rates and rising home prices. On the other hand, you might be curious about turning your home into a rental, allowing your property to pay for itself as it gains value and you continue to build equity.

How should you decide which option is best for you? 

The pros of renting

Renting your home has several significant benefits. Here are a few:

  1. You will continue to build equity in your property
  2. You will enjoy some passive income from the monthly rent. 
  3. You can then use the equity to qualify for a better loan with lower interest rates, making it possible to invest in more rental properties in a shorter period.

 

Overall, investing in rental properties can be very financially rewarding. For example, insurance, mortgage interest, and maintenance expenditures can all be deducted from a rental property’s tax return, among other tax advantages.

The pros of selling

House for sale

Selling your house has upsides too. 

The biggest one, obviously, is the amount you could get in profit from the sale. You may even get numerous bids at or over your asking price if you’re in a seller’s market. You may even receive bids significantly higher than your home’s asking price.

Additionally, renting poses risks that can be avoided by selling. For example, you can avoid the possibility of having a bad tenant (or having a difficult time finding one at all) by opting to sell instead.

How to know whether selling or renting is right for you

Should you sell or rent? It depends on various factors; no one answer will suit everyone. 

Below, we list a variety of scenarios that may influence your decision.

Signs that renting could be a good decision:

1. Local rental demand is high

If rental demand is high in your neighborhood or city, you may consider renting your home instead of selling it. Typically, rental demand is strong in urban areas, colleges, and areas with new developments or booming job markets. 

2. You want to be a landlord

If the thought of renting out and managing properties has always interested you, that excitement could help you succeed.

3. You have a personal attachment to the property

If the property is meaningful to you, it can be hard to imagine selling it to someone else. By renting, you make it financially viable to hold onto a property even if you don’t wish to live there.

4. Your property has renter-friendly amenities

Even if it is no longer suitable for your needs, someone else may find that your house is the ideal place to call home. If your property has amenities that set it apart from similar rentals and make it more desirable to tenants, you should consider renting your home instead of selling it. This is the key to having a successful rental. 

The top amenities searched for on Apartments.com are things like granite countertops and stainless steel appliances, outdoor spaces, walkability, an in-unit washer and dryer, and ample parking.

5. You can make a profit

If you can charge more in rent than you have to pay to cover your mortgage, insurance, and property taxes each month, you can make a profit and earn passive income on your rental. 

While your income will accrue slowly over time (compared to the amount you could get immediately by selling), your equity will also increase. Additionally, your home may increase in value. Each factor contributes to your overall profits if you choose to sell later.

For more information on how you should price your rental, check out our guide

6. You may want to move back

If your move is temporary and you hope to return to the city it’s located in, you may want to rent your property until you’re ready to move back in. When you return, choosing this route may be less expensive than selling and buying a new house.

7. You expect your neighborhood’s property values to rise

While it’s impossible to be absolutely certain, you might be able to make an informed forecast of property values in your neighborhood. To capitalize on the potential growth in value of your home, renting it out may be a better option than selling it outright.

8. You owe more than you can make by selling

If you currently owe more on your mortgage than the home could sell for, you’d lose money by selling. If you chose to rent the home instead, you could cover your mortgage payments and continue to build equity. Then, if you chose to sell later, you’d be in a much better financial position.

Signs that selling could be a good decision:

1. It’s a seller’s market

In a seller’s market, there aren’t many homes for sale, while at the same time, many people want to buy them. If you sell in a market like this, there will be a lot of demand for your property, which can help you get the highest price.

If the inventory of homes in your area has dropped or prices in your area have gone up quickly in a short amount of time, this is a great way to tell you’re in a seller’s market.

2. You couldn’t charge enough rent to make a profit

In a perfect world, the rent you charge would cover your mortgage payments, insurance, property taxes, and maintenance costs, plus a little extra to cover any vacancies. Otherwise, you won’t make a profit on your rental. 

It’s important to realize that even if your property’s value is high, that may not necessarily correlate to being able to charge correspondingly high rent. How much rent you can charge for a home depends on how much a tenant would be willing to pay and how much demand for rentals is in your area. You can get an idea of how much you’d be able to charge for your home by looking at similar rental properties near you.

3. You lack funding to maintain the property or cover a vacant period

If you want to rent your home, you’ll need funding to cover basic repairs and any expenses in the event of a vacancy. If you don’t have this funding, selling your home will likely be a safer option. 

How much is enough? General rules of thumb are to set aside 50% of your rental income, while another is to set aside 1% of the total property value. 

4. You need cash for another purchase

If you need money to make a down payment on your next home or to make another large purchase, selling will allow you to access the equity tied up in your current home. 

5. Your property has maintenance concerns

As a landlord, you’ll be responsible for the basic upkeep of your rental property. However, if your home raises maintenance concerns due to its age or condition, these repairs will be needed more often (and will likely be more costly). These additional costs may mean you’d get better value from selling your home than renting it, especially in a seller’s market. 

6. You don’t want to be a landlord

Being a landlord is a lot of work — marketing your property to find a tenant, adhering to regulations, paying taxes, and maintaining a property. If this sounds daunting, you may be better off selling your home.

However, suppose you’re interested in renting your home but aren’t interested in becoming a full-time landlord. In that case, you can reap the benefits of renting without the added responsibility by hiring a property management company. They can find quality tenants for you, collect rent, handle concerns, and coordinate repairs for a monthly rate or a percentage of your monthly rent. 

Further reading: Self Management vs. Property Management—Which Should You Choose?

7. You can deduct capital gains

If you sell your home for more than you paid, you may be able to deduct up to $250,000 (or up to $500,000 if you are married) of the profit you made from the sale from your taxes. 

However, you are only eligible for this exemption if you have lived in the home as your primary residence for at least two of the last five years.

8. Local laws prohibit renting

Depending on your neighborhood, you may encounter laws that prevent homeowners from converting your home into a rental. Knowing any rules or laws in your area is important before deciding to rent or sell. 

Rent vs. Sell Calculators

Rental calculators

There are many factors to weigh when deciding to rent or sell, but the crux of the decision is determining the best value. This requires you to crunch the numbers to determine how much you’ll earn by selling and how much you’d earn by renting the property. The numbers will help you determine which route is best for you.

A great tool for this purpose is an online calculator. We like the National Association of Residential Property Managers’ Rent vs. Sell calculator. And for those interested in renting and working with a property manager, you can also use Evernest’s pricing comparison tool to compare property management fees and receive a free 10-year cash flow projection. 

Costs to consider

Both selling and renting can incur various costs you should be aware of. After factoring in these costs, you may decide which option is best for you. 

Costs of renting out a home

1. Mortgage payment, property taxes, insurance, and HOA dues

If your rental income doesn’t entirely cover the cost of owning your home, this will be a cost you must consider when renting out your home. 

2. Maintenance and repairs

To ensure the home is appropriate for renters, you’ll need to perform routine maintenance and handle unexpected repairs. Depending on the age and condition of your property, you may need to budget more. 

3. Property taxes

Depending on where you live, your property tax rates will vary. However, property taxes typically increase as a home’s value increases. 

4. Tenant-finding 

While it’s generally not a huge expense, marketing your property is another cost. To find a tenant, you may need to place an advertisement in your local newspaper, for example. 

Some online rental aggregators, like Apartments.com or Zillow, do not charge you to list your rental on their site. However, they will charge a fee if you’d like to advertise on these sites. 

5. Property management fees

Depending on what you hire a property manager to do and where you live, the fees they charge will vary. Most companies charge a leasing fee to help you find a tenant and a monthly fee to handle the ongoing management of your rental. 

6. Landlord insurance 

Landlord insurance is important to cover costs such as damage to your home. Landlords expect to pay roughly 15% more for landlord insurance than a standard homeowner policy. 

7. Vacancies

You may be unable to find a tenant immediately or have a period of vacancy after one tenant moves out. In these cases, you’ll miss out on rental income. 

Costs of selling a home

1. Home improvements

Preparing your home to sell will likely require minor improvements and repairs. A pre-listing inspection can help you identify what needs to be fixed, which can also add to your overall costs. 

You might also choose to stage your home. While it’s another optional cost to consider,  it may make your home more desirable to buyers and allow you to get more in sales.

2. Seller’s commission

According to Redfin, real estate commissions are 5-6% of your home’s selling price. 

3. Home loan payoff

The proceeds of your home’s sale will go to the remainder of your mortgage. So, if you currently owe more than the home is worth, it’s probably not a great idea to sell.

4. Closing fees

You may have to pay some of the closing costs, which, according to Zillow, can range from 8 to 10% of the home’s total selling price. This estimate also includes an agent’s fees, which we mentioned above.

Things to know before you become a landlord

Becoming a landlord - start here

There are some additional factors you should consider before you become a landlord. You’ll need to be familiar with safety and building codes and several federal, state, and local laws protecting tenants’ rights. You risk facing fees or an expensive lawsuit if you ignore these laws. 

You’ll also need to be prepared to handle maintenance concerns and unexpected repairs, and, in some cases, you may even need to evict a tenant

This is why it can be beneficial to hire a property manager — they can help you keep track of the many laws and codes you need to comply with, as well as help you manage your rental, find tenants, and coordinate repairs. 

Further reading: The Ultimate Checklist to Renting Your House

The bottom line

Deciding whether you should rent or sell your home depends on various factors. We hope that this guide helped you understand these factors so you can use them to determine which would be the best decision for you. 

If you still have questions about renting your home, send us a message! We’d love to answer your questions and help you determine if renting is right for you. 


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