As you survey the rooms in your house, with the perfect space sparkling with real estate possibilities, you contemplate the probable paths for the future of your current home.
Many homeowners have to decide whether or not it is in their best interest to rent or sell their home.
Renting vs. Selling Your Home
Whether you are relocating, wanting to keep it as an investment property, or needing funds for a down payment on your next home, this dilemma can involve many financial decisions, stress, and unexpected expenses.
These pros and cons of renting and selling both weigh in on the financial gains and convenience.
Renting Your Home
Pros of Renting your Home
Home Value Appreciation
You may want to refrain from selling your house right away if there is a possibility of your property value increasing throughout time.
Waiting for your property value to appreciate and selling it then could bring you a profit. In the interim, renting out the place could be an excellent way to earn additional income.
There are several ways to determine your home value.
Cash Flow
Renting out your property can bring in a steady flow of cash.
Being a landlord can serve as a job while offering more flexibility in your schedule and still providing passive income. This is useful if you need monetary funds for future investments or to pay off expenses in other areas of your life.
You can determine what rental rate is best for your property in the area.
Tax Deductions
Similar to earnings from any other job, you must pay income taxes for the income you collect from your rental.
Fortunately, you may be exempt from the costs associated with renting out the property.
Read more on tax benefits.
Property Renovation
The additional income from your rental could also go towards some of your other goals, such as home improvements.
For rental property owners, these repairs are typically tax-deductible as well.
Maintain Home Ownership
Renting your property can offer you more flexibility.
If you are changing locations or traveling and still have a plan to return to your property, this option allows you the freedom of moving back anytime you decide.
Cons of Renting your Home
Time and Stress
Being a landlord brings a lot of responsibilities to the table. This includes maintenance of the house, repairing appliances, managing rent payments, and handling difficult tenants.
All of these responsibilities could eat up a lot of your time and could carry weight as a second job.
In addition, if you don’t live near your rented-out property, managing problems could be more challenging. To promptly deal with property issues, you might have to hire a property management company or pay travel costs.
Unexpected expenses and maintenance
Sometimes you don’t know what kind of tenant you will have until a few weeks or months into the lease.
Issues are bound to occur. Perhaps a tenant breaks a stove or toilet, and now it can cost hundreds of dollars out of your pocket to repair. In some cases, the tenant could bring financial losses on your behalf if they don’t pay rent.
It can be challenging to forecast these unanticipated damages and costs that might throw you off your financial budget.
Other potential expenses
Since you still hold ownership of the property, there are still expenses associated with it.
This can include mortgage payments, property taxes, landlord insurance, and accounting and property management fees.
Possibility of damaged property and losses
When renting your property for others to live in, you risk damage.
As a landlord, you never know what to expect when putting your property under the care of someone else. If faced with a problematic tenant, they may even damage and destroy the property, incurring even more costs.
Repairing and renovating the property takes up a lot of time and could affect your timeline of wishing to rent out to future tenants or selling to prospective buyers. Tiffany C. Wright, the owner of a real estate investment firm and The Resourceful CEO, shares her advice on preventing a lousy tenant experience,
My philosophy is to screen well. Furthermore, I document everything and request the tenant’s signature whenever possible. I use applications, security deposit receipts, move-in condition forms with photos or a video, a 6-8 page lease agreement, rent reminder phone calls, thank you calls or cards, rapid follow-up to repair requests, occasional drive-bys and immediate and full enforcement of infractions. This enabled me to find tenants that lasted and to quickly get rid of tenants that did not.
Wright’s words take a realistic look at the number of responsibilities and work a landlord must carry, which you should consider before deciding to rent out your property.
Have a lease agreement and rental application ready if you wish to rent your property.
Selling Your Home
Pros of Selling your Home
Cash Out Right Away
If it seems that the market value of your property is at its optimum, then it could be a good idea to sell it while it’s still worth its maximal value.
If you are planning to buy a new property, receiving this upfront payment could ease some financial stress.
Less Responsibility Afterwards
Once you sell your house, the responsibilities tied to it are minimal compared to renting it out.
You would not have to deal with property maintenance or mortgage payments.
Costs are Usually More Predictable
Many expenses come with selling property, including real estate commission, title insurance, closing fees, etc.
Knowing these costs upfront can make the process much easier to plan and less stressful when budgeting.
Don’t Have to Worry About Damages
When you sell your property to someone else, you no longer have to worry about its damages.
Although renting offers a steady cash flow, the potential damages caused lead to charges for repairs and maintenance.
Selling your house will not only give you the capital upfront, but it also means you can wipe your hands clean of any problems or stress in the future.
Cons of Selling your Home
Hassle
Sometimes uncontrollable factors make it difficult for your house to sell. This can include the home having a complicated history or an unpopular location.
It takes a lot of effort to sell a house since it is a substantial financial commitment for the buyer. This involves establishing a value for the home, determining an appropriate price, hiring a real estate agent, upgrading the property, and advertising appropriately.
This requires time and research to ensure things are in place for the most profitable outcome.
Possible Loss
Some homeowners have to take a loss to sell their homes.
Perhaps your house is worth less than what you paid for it years ago.
This loss can be tens of thousands of dollars. However, in some cases, a capital loss could reduce your taxes.
No ownership
Once you sell your house, you no longer have access to that asset.
Perhaps you have a sudden change of plans and realize you wish you could still reside in your former location.
As selling your house is a big decision and commitment, it should consider any possibility.
More expenses at closing
These expenses can include real estate agent commissions, transfer taxes, home warranty for the buyer, capital gains tax, and closing costs for the buyer.
Some of these you might be exempted from but still cost a great deal of money.
Moreover, even after the sale, as the previous homeowner, you may still be liable for repairs as it is common for home buyers to also request the sellers to cover for any defects discovered after closing.
Additional Resources
Are you still vacillating between decisions? Check out this calculator to see whether renting or selling out is financially best.
