Once you have a habitable home that is ready to move in, a question worth considering may pop into your head. Should you rent your house or sell it? This can be a puzzle, as both offer plenty of benefits and drawbacks.
Read this article to guide you in deciding whether becoming a landlord is right for you.
Rent or Sell?
Property owners can often find themselves sinking deep into their thoughts and deliberating whether to rent out or sell their house. This usually occurs when they:
- Are done paying the real estate.
- Have completed major housing renovations.
- Seek to move but want to maximize their property asset.
- Plan to move but know that they will be returning after a couple of years.
- Look to earn passive income and attain financial freedom.
- Are prepared for changes in lifestyle.
- Recognize the market demand for rentals or properties.
Becoming a landlord can be daunting. This is why conducting research before committing to your final choice is vital.
Assess Your Finances
There are several factors you need to take into account before making a decision, such as:
- The Mortgage Payments of your Property: Your objective is to still earn positive cash flow after paying your mortgage dues.
- Property Taxes You Need to Pay For: These are fixed payables you owe the government, which can quickly add up.
- Taxes for Capital Gains: States differ when it comes to laws on capital gains taxes, so it’s best to research and check for any tax obligations when selling your home.
- Impact of Owning Two Properties: Managing two properties can be costly, especially if one is not fully paid yet but there are still tax deduction benefits you can take advantage of.
- Financial Health: You’ll need to examine your financial health to determine if you have sufficient income to cover the costs of maintenance, tenant management, and other legal duties when renting out your real estate.
The Costs Behind Selling or Renting A Property
Besides weighing your financial case, it is best to learn the costs of renting or selling your house. Once you become aware of how much you are expected to pay, then you can make the best decision.
What Are the Costs of Renting Out A House?
Several costs are associated with rentals, such as:
- Property management charges, which can vary from 5% to 10% of the monthly rental proceeds
- Repairs and maintenance
- Taxes on properties
- Insurance coverage
- Vacancy expenses
- Marketing
- Fees for Homeowners Association (HOA)
In addition, you would also need to calculate the realtor’s commission fee if they find renters or sellers on your behalf. Normally, the commission is lower for renting out your property than selling it. If you don’t plan to engage the services of a property manager, you can also end up purchasing property management software.
What Are the Costs of Selling A House?
If you decide to sell your home, here are the costs to think over:
- Real estate agent fees
- Closing fees
- Repairs
- Staging
- Marketing
Typically, the expenses from any of these items are from 9% to 10% of the property’s sale price. As the seller, you will bear the costs.
Evaluating the Local Housing Market Environment
Before sticking to your choice, you need to analyze the conditions of your local housing market. Having all the data makes it easy to make the right decision. Learn all you can about the local market in your specific area.
What Is the Rental Demand in Your Neighborhood?
As mentioned above, you need to study the different factors that affect market demand to avoid making the wrong choice. Some of these factors include
- Job growth
- New developments/ infrastructure
- Affluent neighborhoods
- Urban areas
- College and business districts
- Redeveloped neighborhoods
When you take time to examine the local housing market conditions, you can check the typical rates set by your competitors and know the tenant turnovers. You can also consult real estate experts in your local area or property management companies to gain accurate information on the local rental property demand and other critical points to evaluate.
Understanding a Seller’s Market From A Buyer’s Market
You need to learn how a seller’s market differs from a buyer’s market before you consider selling or renting out your property.
Buyer’s market
- The number of available properties is greater than the demand for real estate
- Prices are often lower and competitors fewer
- Sellers are placed at a disadvantage
- Buyers are more thorough with scheduling property inspections
Seller’s market
- Demand for properties is greater than the number of available real estate
- Prices are higher since more buyers are competing to purchase
- Sellers benefit more since buyers can make high offers to win the deal
- Transactions are quicker at times since buyers can forgo property inspections
You’ll also need to learn how interest rates are affected in both the buyer and seller markets. It is vital to learn this before choosing to rent or sell your property.
What Is the Potential for Home Value Appreciation?
Will your property increase its value after several years? You’ll need to ask this question. If the forecast is good, then you will earn more profit when you rent out your home or sell it. Factors that impact property appreciation are the rental property type, its appeal to tenants, and local market demand.
What Are the Duties of Landlords?
If you plan to rent out your home, you also need to be aware of the landlord’s duties. These tasks can be challenging on a day-to-day basis, such as
- Attending to property maintenance and repairs
- Managing tenants
- Complying with legal duties
Bottom Line
Whether renting out or selling your home, you need to evaluate the benefits and drawbacks of each and consider your personal situation, specifically your finances. This is a critical decision to make and consulting with real estate professionals can help you arrive at the best decision.
Need some further help with your property endeavors? JTS Property Management is here to help!
