Should You Rent Your House or Sell it?
Are you currently in a position where you are looking to move and are unsure if you want to rent your house or sell it?
Well, when your current home is either no longer attractive to you, you are forced to relocate or are maybe looking to move into a bigger home, the popular option always seems to be to sell your home.
But is this always the most lucrative approach?
Turning it into a rental property might just make more sense.
While owning 2 properties at once may seem a bit overwhelming, it can (if the numbers work out) become a profitable endeavor.
By keeping your "old" house, you may be on your way to building wealth through cash flow and equity!
Variables To Consider When Deciding If You Should Sell Your Home or Rent it Out
When it come's time to make this decision there will be a lot of variables that you need to consider. Moving forward with renting your "old" house out rather than selling will not be the approach that works for everyone. Here are a list of variables that you should consider before making a decision on whether to rent your house or sell it:
What does your current financial situation look like? Will you be able to get approved for another mortgage if you keep your current mortgage
What are the local rental market conditions
What are your future housing plans? Is this a long term decision or are you moving out of town for the short term.
Your ability/tolerance to become a landlord
Your state and federal taxes
Overall real estate market conditions. Are you currently in a sellers market or buyers market?
Are you able to cash flow on the property or at least cover the mortgage, taxes and additional expenses
What is the current condition of the residence? Is it in perfect condition or does it need several updates?
These are the main variables that we want you to ask yourself when you are deciding to make your decision.
5 Key Variables Discussed When Considering to Rent or Sell Your House
1) Does Your Property Cash Flow
The first thing that we want to look at when we are making our decision is the numbers, because if the numbers do not work, it just does't make sense. So when we say "does this property cashflow" what we mean is, will you be producing a monthly profit or loss after we deduct the monthly rent from expenses such as mortgage, taxes, insurance, utilities, management, vacancy, repairs and any extra costs that may be associated with the property. (To learn more about evaluating a property click here). If after you make these calculations, you are looking at a loss, we suggest that you consider selling. (unless you are under the impression the property will greatly appreciate over the years - but don't count on it)
2) How Much Will You Make When You Sell
Now it is time to take a look at your return on your investment. Since when you sell, you will be giving up around 7.5% - 9% from agent commissions, closing costs and additional fees. You have to consider what your net profit will be from the sale. This will be determined through how much equity you have in the property. If you will be making little to nothing on the sale of your property and you will cash flow on the property if you rent, then consider holding onto the property to rent.
If you run your numbers and you are going to take home $100,000 on the sale of the property and you are only going to take home $2,000 dollars per year in cash flow. That is a 2% return on investment. If this is the case, take the $100,000 and reinvest that profit.
3) Consider The Future Conditions For Your Location
Predicting the future is no easy task (lol) but we want you to consider what the value of your home will be in the next 5, 10, 20 years. If you are unsure how to do this, we want you to consult a real estate agent, they should have some detailed information to give a better forecast of what the value of your property will be in the coming years. If the future of your neighborhood does not look bright, you should consider selling now to eliminate any troubles in the future.
Have your real estate agent look at the growth of your city, the popularity of your neighborhood, if there are more jobs coming to your city, if the population is growing among other variables. There is no perfect predictor of the future, but by examining these numbers, you will gain a better understanding.
4) Is Being A Landlord Right For You?
If you have never been a land lord before its not all butterflies and roses. Many people are simply not cut out to become one. No matter how well you screen and qualify your tenants there is always a chance that you get caught with a tenant that in needy and requires more of your time. The good thing for you is that landlording can be learned and improved upon. There are several books, online educational sources, blogs and podcasts that you can read and listen to in order to gain more insight on the topic. Also, if you feel that you are not cut out for the job, you can always consider hiring a professional management company to take over these duties and deal with the tenant for you.
5) The Current Condition Of Your Property
What is the current condition of your home? Is your property in pristine condition where you would have no problem selling your property or are there a bunch of miscellaneous repairs that need to be made in order for you to sell. Renter's more than buyers, will be willing to look past these few repairs, outdated fixtures because renters are aware that they will not be living in this property forever. If you do not have the extra money laying around to put into your property to make the necessary repairs needed to sell your home, then maybe you should consider renting the property out.
So, Should You Rent Or Sell Your Home
As we've learned that with anything, there are pro's and con's to any situation. We also learned that it is possible for you keep your old residence and go out and buy a new one. However, deciding to rent or sell your home is decision that you and only you can make after weighing all of your options (& getting assistance from professionals in the industry). We want you to take a look at the variables discussed above and make a decision that will be beneficial for you and your family in the future.
If you have any questions or concerns, please let us know in the comment section below. We hope that this post clarified your feelings on weather to rent or sell your current home.
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