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Should I Sell My Home or Rent it Out?

When it comes to wealth building, owning real estate is typically at the top of the list. If you are currently in the market for a new home, you may be asking yourself, “should I sell my home or rent it out?” In the current real estate market, you likely have a good amount of equity in your current home, and the possibility of generating rental income is attractive to most.

Renting your current home out can help you cover your living expenses and break into the world of real estate investing. On the other hand, selling could potentially return a more immediate profit with fewer responsibilities down the road. However, cashing out on your current equity may be necessary to fund your new home. 

So how do you decide what to do with your current home? The answer depends on the market, your short- and long-term goals, and your preference for being a landlord. Let’s dig deeper so you can make an informed decision.

Selling Your Home

You likely have a good amount of equity built up in your current home. There is a shortage of inventory for homes for sale so most homes are receiving multiple offers and many homes are selling over the asking price. This makes selling your house in the current market an attractive option.

The equity that you gain from the sale of the home can become a significant down payment or even cover the cost of your new home.

Selling your home now gives you the advantage of immediate capital, an infusion of cash, and money for a down payment on your new home. If you are in a position to be able to afford your next home without selling your current home, you might want to consider holding on to your current home as an investment property.

Renting Out Your Home

Holding on to your current home for the long-term means you are continuing to build up equity and increase your net worth. You will have monthly residual income and a long-term investment that you can leverage to create a bigger investment property portfolio.

A mortgage is stable – meaning that your payment is fixed throughout the life of the loan. Rents continue to rise over time, meaning that as time goes on, your mortgage stays the same, but the opportunity to earn more income from your rental property rises.

You can also consider renting your home in the short term if you are not yet ready to sell the property. While it may be a little more complicated to sell a home with tenants in place, this strategy means that you can generate short-term rental income now and sell when you are ready to access the equity in the home down the road.

Do the numbers make sense?

When answering the question “should I sell my home or rent it out?” you should first crunch the numbers. While you already know the figures for your monthly mortgage payment, you should have a good idea of the annual maintenance cost because you have been living in your current home. Take those figures into consideration and break that down monthly.

Here’s a short list of expenses to consider:

  • Your mortgage, taxes, and insurance
  • Any changes to home insurance/liability insurance for changing to a rental property from owner-occupied
  • Any utilities that will not be covered by tenants (such as water and garbage)
  • Variable and fixed maintenance costs
  • Homeowner association fees
  • Rental income taxes
  • City-specific expenses, such as rental licenses
  • Snow removal and grass cutting, if included
  • Any wildcard expenses – pad your budget to include unexpected expenses like fixing a leaky toilet or repairing a kitchen sink

Next, take a look at the local market. You need to know what amount of rent the market will allow based on your specific property, location, and amenities. This is where leveraging an experienced real estate team can help you. Spectrum REC has a dedicated rentals division that can help you evaluate the local market and even help you to get quality tenants. If the total projected amount of expenses is less than the projected amount of rental income, then it’s a safe bet that you can realize a monthly profit.

Are you ready to be a landlord?

Becoming a landlord can be stressful and comes with a lot of responsibility. There are a lot of factors to consider – including becoming familiar with local laws and regulations, having proper insurance to protect yourself and your tenants, and whether or not you want to hire a property manager. Property management can relieve some stress, but the figures also have to make sense. Choose a company that will alleviate the burden of collecting rent, making repairs, and dealing with tenants if it still yields a profit after all expenses have been paid.

Here are a few other questions to consider before renting out your home:

  • How will you respond if your tenant says they can’t afford to pay the rent this month because of more pressing obligations? (This happens most often during the holiday season and back-to-school time when families with children have extra expenses).
  • Because of the economy, many homeowners cannot make their mortgage payments. What percentage of tenants do you think cannot afford to pay their rent?
  • Have you interviewed experienced eviction attorneys in case a challenge does arise?
  • Have you talked to your insurance company about a possible increase in premiums as liability is greater in a non-owner-occupied home?
  • Will you allow pets? Cats? Dogs? How big a dog?
  • How will you collect the rent? By mail? In-person?
  • Repairs are part of being a landlord. Who will take tenant calls when necessary repairs come up?
  • Do you have a list of craftspeople readily available to handle these repairs?
  • How often will you do a physical inspection of the property?
  • Will you alert your current neighbors that you are renting the house?

If the list above seems daunting, start researching property management companies. These companies are already familiar with local laws, can help you find and keep quality tenants, and will do all the heavy lifting managing the property. Depending on your home’s location and amenities, you can also consider short-term rentals like Airbnb or VRBO. Many homeowners use this short-term strategy to generate long-term income and cover annual expenses. At Spectrum REC, we are here to help you navigate the rental market and point you in the right direction to become a successful property investor.

When Does It Make More Sense To Sell?

While having a long-term, income-generating investment property can help you increase your net worth, plan for retirement, and help you achieve your financial goals, there are some cases where it makes more sense to sell. Here are a few situations where selling might be the better option:

  • You don’t have enough resources for a down payment on your next home. If you need to access the money from your home sale to buy your next home, renting it is not an option.
  • It’s a seller’s market. In a seller’s market like the current one we’re facing, the demand from home buyers is higher than the supply of homes on the market. While your home will continue to gain equity, taking advantage of a peak in the market could mean you’ll now get more money from selling than the annual profit from renting.
  • You’re not in a rent-friendly area. If there’s not a pool of potential tenants in your rental market, selling and cashing in on your equity might make more sense. You can do your research or consult a real estate professional to help you determine market demand.
  • Local restrictions mean you can’t rent out your home. Check with your local town hall, HOA, or condo association to determine if you can legally convert your home into a short- or long-term rental. If it’s not an option, then it’s time to sell.

If you’re ready to move on but are not sure if you should sell your home or rent it out, consider the pros and cons of both options. Selling might be a better option if you can get top dollar for your home, especially if you need the money to put a down payment on your next home. However, renting it can bring long-term residual income and build your net worth. The team at Spectrum REC is here to help you navigate the current real estate market to make the best decision on what to do with your current property.

Book a private consultation with us today to develop a plan for your current and future home!

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