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. Which of these options is best will depend on many factors. You should consider each of them.
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 suck you dry. Simply put, 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 will include; mortgage, insurance, repairs, taxes, HOA fees and management fees. If you hire a property manager, expect vacancies, advertising and other costs.
Your expenses may vary, so consulting a local real estate agent who handles rentals would also be prudent. Also consider long-term rent prices. Will they go up, or down? Locally, rental prices have been going up faster than real estate values, due to the lack of available inventory.
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.
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 up to 10 percent of your rental income depending on the level of service you request.
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.
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 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 about life decisions.
4. 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. In addition to deducting regular expenses, you can also claim a deduction for depreciation on the property as well. Check with your trusted tax professional for more details on deducting any losses or depreciation.
5. 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 have allows for trial and error.
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, be prepared.
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.
Deciding between renting and selling a house is not something that should be taken lightly. You are making a major life decision. Hopefully, the information here will help you make the right choice for your life circumstances.
Call us today, (951) 296-8887 and get the information you need enabling you to make an informed, educated decision.
Questions regarding available inventory and/or other real estate matters please contact, [email protected] Mike Mason, Realtor® & Broker/Owner of MASON Real Estate. DRE: 01483044, Temecula Valley resident for 30+ years, Board of Director (2011-2017) Southwest Riverside County Association of Realtors® (SRCAR).