Should You Sell Or Rent Out Your Home?


Should You Sell or Rent Your Home?

the market still favorable for sellers and rents at all time highs, many folks are considering making a move to something larger, or maybe it’s time to downsize. The big question is what to do with your current property when it’s time to move. Does it make sense to keep your place as a rental, or is selling a smarter choice? While renting allows you to either pay off your mortgage or even make a little money, it also comes with a hefty share of risk and complications.

Why Rent Your Home?

Your rent might cover your monthly mortgage payment, essentially having your tenant pay for you to build equity in your home. Once the mortgage is paid off, you can keep any monthly rent as income.

  1. Costs of Renting

When considering the mortgage payment into the cost of the rental, be sure to include both interest payments and principle payments. While property taxes vary by area, most homeowners can expect to pay up to 2 percent of your home’s value per year.

You will need to acquire Landlord insurance that covers tenant damages and protects you if someone is injured on your rental property – typically around 15 percent to 20 percent more than homeowners insurance.

Homeowners Association payments are required when you belong to an association. Repairs and replacements such as windows, doors, walls, carpeting, roofs, and major appliances must be repaired or replaced.

  1. Rental Profitability

Checking rental postings in your neighborhood can help get a fairly accurate estimate of potential rent revenues or talking with a local real estate agent or property management company can help you check the going rate in your area.

Just like any business, revenue must exceed costs to be profitable. The bonus is that the costs you incur to rent the home are tax-deductible and can decreases the amount of tax you have to pay.

Selling Considerations

Before you choose to sell or rent, think about your individual financial situation, the condition of the housing market, and any state or local ordinances that affect your rights as a landlord.

  1. Sales Price and Capital Gains

If you’re not satisfied with the market value of your home, renting it out can bring in some income as you wait for you’re the value to rise. Keep in mind after you rent the home out for more than three years, you can no longer claim it as your primary residence, which means you’re liable for tax on the sale of the house.

2. Tax on Rental Income

Homeowners are assessed income tax on any income you derive from your rental, at your typical tax rate. You can write off all the costs associated with renting the house, however, so if your gross rental income for the year is $40,000 but you incurred $30,000 in rental expenses, you’re only assessed tax on $10,000.

  1. Equity

Many homeowners can come up with the down payment for their next home by cashing out the equity from the one they already own. Carefully consider if you can scrape together enough to put a down payment without selling your existing one.

  1. Time and Stress

Being a landlord can be time-consuming and draining. You have to manage calls from tenants, maintenance and repairs, as well as any emergencies. You can hire a property management firm to do this but expect to pay at least 10 percent of your rental revenue.

Like most investments, renting a house can be a risk. If your home value appreciates and rents continue to rise, keeping the home rented can provide a great return on investment. However, if rents decline or your homes value doesn’t, or you get tenants who don’t pay, it can be more of a fiasco than it’s worth.


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