If you and your family want to move into a new home, you may wonder what to do with your current one. Endless possibilities arise when considering, “Should I sell or rent my house?”
Each homeowner will make the right decision with reasons unique to their situation. Below, you can explore specific instances when selling or renting your home makes sense and review factors to think about.
When to Consider Selling
Here are some scenarios when it would make sense to sell your house:
You Don’t Want to Be a Landlord
Being a landlord presents a lot of responsibilities that you may not want to accept, especially if you’re busy pursuing a career or starting a family. You may also not want to put in the work to learn the necessary tasks and familiarize yourself with the intricacies of landlord-tenant law.
If you’re not prepared to collect monthly rent payments, perform general upkeep and maintenance tasks, and handle difficult tenants, you may consider selling instead of renting.
Hiring a Property Manager
Hiring a property manager can take some of the work out of being a landlord. It also makes becoming a landlord more possible if you’re not located physically close to your rental property. However, it can cut into a significant portion of your rental income.
You Don’t Want to Account for Rental Expenses
Since you still own a rental property, you’ll be responsible for the property taxes, mortgage payments, landlord insurance, accounting fees, and property management fees. Furthermore, rent-specific expenses are bound to occur. For example, you may have to repair broken appliances like stoves, toilets, laundry machines, or light fixtures.
Foreseeing and accounting for these unanticipated expenses in your budget may be challenging. You must determine a reasonable rental rate to cover expenses and yield a decent profit.
Considering Vacancy Periods
There may be times when no tenants live in your property, whether it’s due to low demand in your area or difficulty in finding a qualified tenant. You prepare for potential vacancy periods and a temporary loss of rental income.
You Don’t Want to Risk Property Damage and Losses
As a landlord, you never know what to expect when inviting someone else to live at your property. Even if you complete a thorough tenant screening process, you may end up with a problematic tenant who damages and destroys the property and incurs hefty costs for which you’re responsible.
While you have recourse options like keeping a portion of their security deposit or taking them to court and suing for property damage, these options can be time-consuming and more trouble than they’re worth.
You Want to Cash Out Right Away
If the market value of your property seems to be at its optimum, it could be a good idea to sell it while it’s still worth its maximal value. If you plan to buy a new property, receiving this upfront payment could ease financial stress.
You Have Other Priorities
You may want to prioritize different goals. For example, you may want to simplify your financial situation and only pay for the home you live in. You may also want to relocate to a rental unit and focus on excelling at a new career in a different city. Whatever your goals are, you may conclude that selling is the right decision if owning a home doesn’t align with your current needs.
When to Consider Renting
Here are some situations when renting your house may be the right decision:
You Don’t Want to Search for a Buyer
Searching for the right buyer can be challenging. First, you must prepare the home for sale and stage it to attract potential buyers. After scheduling showings, you must navigate lowball offers and deal with contingencies in buyers’ offers. For example, the sale may be contingent on the completion of specific repairs, the buyer acquiring financing, or the buyer selling their current home.
If you don’t want to deal with these obstacles, you may look into renting your home instead and seeking rental income.
You Don’t Want to Take a Possible Loss
Even though the national market is currently a seller’s market, you may live in an area leaning more toward a buyer’s market. For example, cities like North Port, Florida, and Greeley, Colorado, are currently buyer’s markets. [1] If you sell in a buyer’s market, you may take a loss and not receive as much as you initially paid for the home.
You may also take a financial loss because of the costs associated with selling. For example, you have to pay for buyer-mandated repairs, real estate agent commission fees, title insurance fees, escrow fees, holding costs, and capital gains taxes.
You Want to Build Cash Flow
Renting your property can bring in a steady cash flow. Being a landlord can serve as a job while offering more flexibility in your schedule and still providing passive income. This is useful to fund future investments or pay off expenses in other areas of your life. Plus, while generating rental income, you can give your home time to appreciate in value.
To build a profitable cash flow, determine the best rental rate for your property and see if it will pay off based on your current home expenses.
Rent-to-Own Options
If you’re sure about selling in the future but want to temporarily experience the benefits of renting, consider entering a rent-to-own lease agreement with the buyer. You’ll be required to sell to the tenant if they exercise their option to do so, but it still lets you ease into the arrangement.
You Have an Attachment to the Home
If this home has been your primary residence for a while and you don’t want to part with it, you may keep it as a home to rent out. This way, you can still generate income with it but have the flexibility to change locations or travel. After renting for a while, you also have the option to move back at any time.
You Don’t Mind Being a Landlord
If your house offers appealing amenities for renters and you don’t mind accepting the landlord role, you may be ready to rent. Before renting, ensure you’re familiar with the maintenance costs and various landlord responsibilities, such as collecting rental applications, conducting background and credit checks, and responding to tenants’ complaints.
When it comes to renting out your house, you should also consider the legalities. For example, you need to know whether you’re responsible for mold and what to do in case of late rent payments. Alternatively, you can enlist the services of a property management company to take care of these logistics. Note that it will lower your potential rental income because of the associated costs.
Landlord Forms
If you’re ready to become a landlord, you can access the necessary forms, such as a rental application and lease agreement. If things go awry with a tenant, you may also need forms like an eviction notice for late rent or non-compliance.
Should I Sell or Rent? Factors to Consider
Here are some factors to consider when deciding between selling or renting your house:
- Your Area’s Rental Demand: Consider if landlords in your area experience success with their rental properties. Think about if your property is highly marketable or situated in a location that’s attractive to renters.
- Your Local Housing Market: You may be better off keeping your home as an investment property if it’s a buyer’s market, but you may want to look for a buyer if you’re in a seller’s market.
- Costs Involved: Calculate the costs involved with selling and renting your property. Selling your property may come with some hefty costs upfront, but renting may involve more predictable costs over a prolonged period.
- Rental Income vs. Selling Price: Determine if you’d prefer generating rental income or gaining access to a larger sum of money from the selling price.
- Your Availability, Plans, and Lifestyle Changes: Decide if you want to accept the duties of a landlord or if you’d prefer not to have the responsibilities of renting a home to tenants.
- Local Laws and HOA Rules: Evaluate the legal landscape of your area. If you live in a place with strict HOA guidelines or rigid rental laws, you may have a more challenging time or fewer profitable opportunities with renting.
Deciding Between Selling vs. Renting: A Hypothetical Example
Understand the intricacies of the selling vs. renting decision by analyzing a hypothetical example in relation to several factors:
Stephen and Samantha live in a two-bedroom home in a suburban neighborhood. They will soon move to a different city because Samantha received a job offer. Therefore, they need to determine whether they want to sell or rent their current home. They bought their current home in 2018 for $350,000. They made a 20% down payment of $70,000 and secured a 30-year fixed mortgage with an interest rate of 3.5%.
Their current monthly payment, including principal, interest, taxes, and insurance, is about $1,800. A recent market analysis revealed their local rental market is strong, making the home worth $475,000. They may make $150,000 in proceeds after paying off the remaining mortgage and covering selling costs.
The new home they want to buy in the city costs around $600,000. If they sell their current home, they might be able to use the equity to make a large down payment, reducing their new mortgage amount.
Alternatively, they also weigh the option of keeping their current home as a rental property. They predict they could rent it out for about $2,300 based on other rental listings for similar properties in their area. This rate would provide a small positive cash flow, but they are hesitant to become landlords, especially since they’d be living in a different city.
Ultimately, Stephen and Samantha decide to sell their current home. Even though renting could provide some income, they prefer the financial security of using the home’s equity for a down payment on their new home. This strategy will help them keep their monthly expenses more predictable, which is especially important because they want to save money to have a child and start a family.
Summary
When deciding whether to rent or sell your home, consider your willingness to be a landlord, the local market conditions, potential rental income, and your financial goals.
Selling may be best to access immediate cash, avoid the hassle of managing a rental, or prioritize other goals. Renting could be advantageous if you want to build cash flow or aren’t ready to part with your property. Evaluate all factors to make the choice that best aligns with your needs and plans.
