You’re ready to move on to a new home. But what should you do about your current one? Should you put it on the market to sell, or should you rent it out?
Turning your home into an investment property can be appealing. Real estate is a good investment, and if you can use someone else’s money in the form of rent for that investment, even better! There are plenty of tax benefits to owning a rental property as well.
I talk to property owners all the time trying to make this decision. I’ve seen the best, and the worst, of investment properties, and I’ve learned along the way when it is a good, or not-so-good, idea to rent out your home.
Reasons You Should Rent Out Your Home
1. You have not been able to sell your home, and you need to move on.
If your home has been on the market for months and nothing is happening, it may be better to take it off for a while and rent it. Instead of paying a mortgage on a home you don’t want while you wait for a buyer to bite, create income by renting and try again in a year or two when the market improves.
If you need to move soon for a new job opportunity, this is often the best choice. But make sure your home is priced correctly, staged correctly, and your real estate agent is doing their due diligence before you decide your home isn’t sellable.
2. Your move may not be permanent.
If there’s any chance you might want to live in the house again, it may be a better idea to rent it and move back if and when you return, than to pay real estate agent commissions for selling your home and then eventually buying a new home.
You can actually avoid paying capital gains tax if you end up selling your home after all, as long as you lived in it for two of the five years before the sale. So if you intend to move back OR sell the house soon, renting is a good option.
3. The rental market in your neighborhood is hot – and getting hotter.
Some areas are experiencing rapid growth and attracting eager renters. Look online for rentals in your area to see the average rent prices for comparable properties. If they are much higher than your mortgage payment, you might do well to rent your home and pocket the difference!
Be sure you are watching the trend, though. If the market is peaking, it may be a good time to sell instead. If your neighborhood is steadily climbing in demand, though, take advantage of it now by renting.
4. Your home is set up well for renters.
In addition to considering demand in your location, consider demand for your type of home. Houses with three or more bedrooms and two or more bathrooms are perfect for roommate situations, which is a draw for students if you live near a college campus. Or, if you have a studio loft downtown, your property could be the perfect fit for a single young professional.
Reasons You Should Sell Your Home Instead
1. Rent will not cover the mortgage.
Ideally, rent for an investment property should cover your monthly mortgage payment and then some.
Remember that there are costs associated with maintaining a home, so while it’s fine to break even, it’s not the best case scenario. If you can’t even pay your mortgage with rental income in your current market, though, it’s better to try to sell your home. It may be that your area or type of home is simply not in high demand for renters.
2. You won’t be able to pay your mortgage in the event of a vacancy.
If you don’t plan for a rainy day, you’d better believe the storm clouds will soon roll in. While extended vacancies are unlikely if there is demand for rentals in your area, and you or your property manager are marketing your home, you never know what the future may hold.
Simply put, if you can’t pay your mortgage for up to six months without a renter, you might not want to rent your home.
3. You don’t want to be a landlord.
A property management company can help you avoid many of the common headaches that come with owning an investment property. Still, there are pitfalls you can encounter when you first begin renting your home.
Are you willing to invest the time, effort and often money that comes with renting a property? Will you be able to pay to fix the roof after a storm? Will you get bent out of shape if the floors get scuffed? Ask yourself these questions before committing to renting out your home.
Determining whether to rent or sell your home can be a tough decision. However, I hope these reasons will help you come to the right choice for you and your family.
Have you turned your home into an investment property? How did you decide whether to rent or sell?
About Ryan Edwards
Ryan Edwards is the owner and property manager for EZR Management. He founded the company in 2006, building on his years of experience managing and renting properties.