Life happens. Whether it’s a job transfer or the sudden availability of a house you always wanted, deciding to sell your home or rent it out is a tough problem many people face.
Deciding To Sell Your Home
Emotions often play a role in this decision, but they really shouldn’t. A few simple mathematical calculations and thorough research on the local housing market are the smart moves to make.
When deciding to sell your home, what are some of the factors to consider? The list below includes the biggest areas, all of which need careful consideration before deciding whether to rent out or sell your home.
This is the biggest issue, and it’s all about math.
Renting the home works out well, but only if it results in positive cash flow for you. Before deciding to rent out or sell your home, list all the expenses of the property. They include:
- Mortgage payment
- Repair costs
- Monthly utilities
- HOA fees
- Property manager cost (if you hire one)
Take all these costs and then calculate what you will charge for rent. It’s a simple mathematical formula to determine if rent will cover your costs and create positive cash flow. If it doesn’t, then it’s probably time to sell your home.
Some people enjoy being landlords, or at least don’t mind dealing with the many issues that will come up. Others are never comfortable as landlords. This is another area that requires careful consideration.
Unfortunately, most property owners will tell you that good tenants are like unicorns – they’ve heard they exist, but they’ve never seen one. Even the best of tenants will cause wear and tear on the property, a cost that must be factored into your decision. As mentioned in the cash flow section above, try to build in repair costs into the monthly rent payment.
With tenants, also expect late night phone calls and emergency repairs. However, you can also hire a property manager to deal with tenants (but that’s another cost to consider).
Taxes rarely go down, so you can count on the property taxes for the home to stay the same or increase over time. You also will be taxed on your rental income, which is added to your regular income. However, you can write off some of the costs associated with running a rental property, as well as the interest paid on your mortgage. This is another area where it’s time to break out the calculator and add everything up.
Will You Move Back?
Obviously, if you plan to move back to the home or sell it to someone in your family down the road, then renting it out is the way to go. In theory, even if it doesn’t create positive cash flow, you at least will keep the home and have some of the costs covered. However, work to set a rental rate that covers your expenses and try to control costs.
However, if you want to keep the home because you think you will need it in the future, then that factor can trump purely financial considerations.
Is The Market Going Up?
A perfect scenario involves having a rental create cash flow while the value of the property continues to increase. Do the research on the housing market in your area, down to the specifics of your neighborhood and the street you live on. If there has been an established pattern of home values rising and investment by buyers in the community, then keeping the house and renting it out is a smart move.
The decision to rent or sell your home can be an emotional one. While certainly there are personal issues that are part of the equation – especially deciding whether you might need the home in the future – this is one of those times where factual research and calculating costs is the way to go.