A myriad of factors can influence someone’s decision to either sell or rent out their house. It could be due to relocation, a change in lifestyle, a long-term financial goal, mortgage interest rates, or even immediate cash needs. The reasons could be many and varied!
But the question remains – should you sell or rent your house? Not an easy choice, right? Of course, both options have their list of pros and cons that you will need to seriously consider.
In today’s blog, we’ll walk you through everything you need to know for a sound decision. Keep reading to learn more!
Understand your Goals
Don’t make a blind decision; understand your goals and then work towards meeting them. The following are a couple of things you’ll want to keep in mind.
Rental Income
Has earning a passive rental income been one of your long-term financial goals? If so, ensure the math adds up. In other words, calculate the profitability of the lease term and overall rental.
Suppose, for example, your home has a market value of $250,000. You also have $1,250 in mortgage payments to make every month, and other expenses like property taxes and landlord insurance add up to $400.
If you charge tenants a monthly rent of $2,500, you’ll be left with a positive monthly cash flow of $850.
However, from the $850, you’ll also have to factor in other expenses as well. Such as, management fees, vacancy costs, and repair and maintenance costs.
Ultimately, make sure to generate a positive cash flow from the investment, where the income exceeds the expenses.
Property & Capital Gains Taxes
Consider the taxes you’re going to be liable for if you decide whether to rent or sell your home.
Property taxes are levied against the value of a property. They are a main source of revenue for local governments. The exact value you’ll be liable for will depend on whether a property is a primary residence or an investment.
When it comes to capital gains tax, the amount to pay will depend on the length of time you’ve been living there, whether single or married. If you’ve lived there for two of the past 5 years, you won’t have to pay any capital gains taxes.
If married and filing taxes jointly, you’ll be exempt up to $500,000. If single, you can have tax-free capital gains of up to $250,000.
Study the Housing Market
Before you consider renting or selling your home, get some insights about the market. Evaluate the rental demand to see whether renting out your house is going to be feasible. The following factors usually indicate that an area has a good rental demand.
- Job growth
- New Construction
- Population growth
- Low cost of living
- Good transportation options
- Proximity to amenities
- Low vacancy rates
Alternatively, consider consulting an experienced property management company.
When it comes to selling a house, you’ll want to examine the housing market. Specifically, whether it is a seller’s- or a buyer’s market.
A seller’s market is where there is demand for housing. This enables sellers to have more negotiating power than prospective buyers. Conversely, a buyer’s market is one where there is more housing inventory and lower prices, giving more negotiating power to the buyer.
Understand the Cost Implications
There are certain costs involved, whether selling or renting out a house. If you decide to rent out your house, expect the following costs.
- Insurance
- Property taxes
- Property management fees
- Vacancy costs
- Marketing costs
- Tenant placement costs
If you decide to sell it instead, expect to incur the following costs.
- Marketing costs
- Real estate agent fees
- Staging fees
- Repair fees
- Closing fees
Broadly speaking, these will take about 10% of the total home sale price.
What Should I Do if My House Won’t Sell?
You may have a difficult time selling your house for several reasons. From unfavorable economic conditions, to location, to emotional attachment, to seasonal fluctuations. But regardless of the situation, there is another option you could consider – renting it out!
You see, renting out your house comes with multiple benefits. Including, earning a passive rental income, building home equity, and taking advantage of numerous tax breaks. Furthermore, you’ll still have the option of selling it when the market becomes favorable.
That said, being a landlord isn’t for the faint of heart. You’ll need to wear many hats to keep your property running smoothly. The following are some of the responsibilities you’ll have.
- Marketing the property when it becomes vacant.
- Screening prospective tenants.
- Drafting and enforcing the terms of the lease.
- Responding to repair and maintenance requests.
- Abiding by the local landlord-tenant laws.
- Filing taxes with the IRS.
If you have the experience of being a landlord, you can consider self-managing it. However, if not, your best bet would be to hire a property management company.
A good property management company will help handle everything so you can focus on other important things in your life.
In addition, they can provide you with helpful insights about the market should you decide to sell it in the future.
Conclusion
When it comes to selling or renting out a house, the decision is never easy. It takes a critical analysis of the market conditions and one’s financial situation, among other things, to make an informed decision.
Fortunately, though, hiring an expert can help you not only make a sound decision, but also avoid common pitfalls. Young Management can help walk that journey with you!
We are a top property management company in Kansas City, MO. We have extensive hands-on experience in residential apartment management. Get in touch to learn more!