You’ve lived in your own home for a while now, but of late, you seem to have lost interest in it and don’t wish to live there anymore. Generally speaking, when people are tired of living in a property they own, they first think of selling it and buying something better. However, that’s not the only option you have. You can also consider renting it out to someone. While that may not fetch you a considerable amount of money at once, you could end up making the same amount or more in time, depending on the rent you charge and the period you decide to rent it out. The question is: Should you sell your home or rent it out?
If you need a lot of money right away, there’s no point in renting out your house. But if you wish to try your luck at renting because it provides you with a steady income source, it makes sense to rent it out. If it doesn’t work out for some reason, no one will stop you from selling what’s yours! Let’s explore the pros and cons of renting out your home versus selling it so that you can take the right step whenever you’re ready:
Pros of renting your home:
- Income inflow
It’s a given that the reason you rent out your home is to earn a substantial income from it. While being a landlord comes with its set of challenges, if you hang in there long enough, you can turn it into a lucrative business. If you happen to live in a sought-after neighborhood, you can charge a high rent and still have hordes of prospective tenants lining up in front of your home. Besides the steady passive income, your monthly mortgage payments are nicely taken care of.
- Equity building
While the rental market is bound to go through the ebb and flow, your property’s value will still increase over time. If it’s not all that old, it’s a wise decision to keep it longer while renting it out so that its equity appreciates over the next couple of years.
Finally, should you want to continue with your renting business with the purchase of additional properties, your current property’s equity will help you secure a decent loan with reduced interest rates.
- Tax deductions
One of the significant benefits of renting out your home is that you’re eligible for tax deductions. How? Well, you can minus all the expenses you incur from the upkeep of your home from your rental income. That way, the amount of money you save in taxes totals thousands of dollars. In fact, depreciation is among its biggest deductions because properties tend to go through wear and tear over many years, thereby losing some of their value.
- Option of moving back home
Hypothetically speaking, after years of renting out your home and earning well, you might be tempted to return to it and start living there again. Maybe because it was your first home, you’re deeply attached to it and didn’t realize it until recently. Renting gives you that option because regardless of who lives in your home, it belongs to you.
- Paying off debts:
Your biggest debt comprises your mortgage payments, and you’d do anything to pay them off, wouldn’t you? Anyone would! In real estate jargon, the term ‘amortization’ is used to describe the process of paying off debts in stipulated installments over time. By renting out your home, you end up saving money. How so? The rent your tenant pays covers your monthly mortgage payments. Each mortgage payment comprises a part that covers the interest and the other that covers the principal. The part that covers the interest is tax-exempt, while the principal amount pays off your mortgage debt!
In summary, if you keep your rental house for long, your tenant will essentially be paying off your mortgage for you, and you can sit back and enjoy the tax benefits!
Cons of renting your home:
- Approval of home loan is challenging
You might face challenges in acquiring a home loan if you’re looking to purchase another property. It might be more difficult if you’ve just started your renting business and need more time to accumulate a considerable rental income. In other words, you’re not earning enough from the rent to be eligible for a loan.
When you express an interest in buying another property, your mortgage provider will do two things: look at your credit report and assess your income and assets to see if your finances will allow you to pay for two mortgages. So, if your funds aren’t enough to cover the mortgage payments for the next three to six months for your first property, there’s a potential problem
- Being a landlord takes time
If you think that being a landlord means you get to sit back while the money keeps pouring into your account, think again! The income may be high, but it involves numerous responsibilities, from ensuring you receive the rent on time to checking on your tenants occasionally to looking into their repair issues, not to mention maintaining the entire property!
If you think you’re not cut out for all this, you can outsource it to a property management company, provided you’re able to bear the costs. Also, remember that some of your income will take a hit if you assign a property manager to take care of your property.
- Probability of market downfall
Ups and downs in the rental market are bound to happen, so you’ll need to brace yourself for them. However, what one’s not usually prepared for is if it collapses out of the blue! A large-scale market crash will take time to recover. So, remember before taking the plunge that it will involve risks and ask yourself if you’re willing to take them.
In the end, your decisions and actions should be aligned with your wants and desires.
- Be prepared for vacancies, evictions, and maintenance issues
As a landlord, there are chances that your property might lie vacant for a while when a tenant moves out, or you might have to evict a rogue tenant. There might even be situations where you have to spend a good deal of money on fixing large-scale maintenance issues on your property. All three cases involve cash outflow and are detrimental to your business.
Therefore, to be better prepared to face these problems, save enough to get by even after you incur these costs and have no income flow.
Pros of selling your home:
- More money at your disposal
Once you sell your home, you’ll have a lot more money at your disposal. If you have plans to invest in other properties or assets, this money will serve as capital for those investments.
But before you rush to sell your home, assess the market conditions well. If you find that there are too many potential buyers but not too many homes, you’ll be able to sell your home for the asking price. At the same time, if you happen to live in a highly sought-after neighborhood, you can demand a much higher selling price for your property than what it would typically fetch.
- Nothing tying you back to the property
Once the property’s sold, you’re off the hook and can move on to greener pastures. While renting out a home has its pros, you’re not going to have to look into maintenance issues, tenant problems, and find new tenants when they move out for two properties at once. Let’s be real. Taking care of one property is tough, so why invite more trouble by looking after two. When you’re ready, purchase another property in a new place and begin afresh.
- You protect yourself from a market downturn
If you follow the rental market closely and keep yourself abreast of the updates and fluctuations, you might be able to escape from a predictable market downfall. If you see signs that tell you that the market’s headed for a crash, you should strike while the iron’s hot. Sell your home to the first potential buyer you come across, and get out of the scene!
Cons of selling your home:
- Updates needed before selling
You’re going to have to make your peace with the fact that your home will need some fixes before you can sell it. The rental market is always pretty competitive, so potential buyers won’t purchase the house if it isn’t renovated or needs repair. If you don’t have sufficient funds or don’t want to get into the tedious repairing process, you might have to settle for a much lower price than what you had imagined.
- Unsuccessful sales process
Contrary to popular opinion, selling a home is challenging. To make the sales process successful, you should be ready to take a few steps to turn the situation in your favor. For starters, set attainable sales goals so that you‘re not disappointed when you don’t come close to achieving them. Second, refurbish your home to enhance its value. Last but not least, get hold of a capable realtor.
In a word, look for realtors who’ve achieved a fair amount of success in selling homes, but remember to screen them well before hiring someone.
So, do you have a clear idea of whether you’d like to rent out your home or sell it? Or are you still caught between a rock and a hard place? Since it’s not an easy decision to make, you may want to weigh your priorities. For instance, how badly do you need the money? Do you need it immediately? Since overseeing the property and its matters is overwhelming, you’ll need a property manager, but can you afford one? Something else you should consider is the current state of the market and where you foresee it heading. The answers to these questions and the information we’ve shared should help you make a practical decision. Good luck!