Well, the Chances are, your current home will not cater to your needs forever. Sooner or later you’ll grow up, have a family, have kids, a dog and whatnot. Now for some obvious reasons, you might want to upgrade to a larger house with room for more people as your family grows & you’ll probably think of leaving the small starter home or condominium you’re living in right now, right? Or, another possibility is, you’re already in a big house & once your kids move out, you might want to downsize your home. In addition, this highly possible scenario that you or a family member might need to resettle somewhere for work, so it’s time to part ways with your current address.
The bottom line is, one day or another, you’ll have to change your house because your needs are going to change, in some years your priorities are going to be much different. The big question then will be, what should you do with your house when you’ll move? Is it better to keep your old apartment as a rental unit or is it more sensible to sell it?
While renting enables you either to pay off your loan or make a little money each month, it also entails a fair degree of risk and problems in terms of taxation. Also, please note that the house is just an example here, it can be any property which can replace it – like your old in-house dental clinic or the music room you own. You can face the same dilemma in case of your garage as well.
Like most of the major questions in our lives, there is no simple answer to this question as well. Renting & selling out your property has numerous benefits, but they both have an equal number of cons as well.
Renting v/s Selling The Property
Which of these choices is better, well that actually depends on certain factors. In order to identify which one is best for you, you will evaluate each of them and evaluate them against your personal preferences later on to find the answer!
What To Consider Before Renting Your Property
Will Renting The Property Be Profitable?
You need to know whether renting your home will produce positive cash flow, or whether it will suck you dry slowly (or quickly). The way you calculate this is to add up all the house rental costs and deduct them from the income you’ll make from becoming a landlord (and the tax breaks that you’ll get).
Some of the major expenses which a landlord has to bear are:
- Mortgage Payments: This includes both – Interest payments and the payments of principal.
- Property Taxes: Although the property taxes vary from area to area, but you can easily expect the rate to be 2% of your property’s value per year.
- Mortgage Insurance Premium: If you have a down payment of less than 20% of your house’s value, you can anticipate yourself to be paying the mortgage insurance premiums.
- Landlord Insurances: This insurance basically covers all the damages done by the tenants & protects you if someone gets injured on your property.
- HOA Fees: This payment is not a compulsory one, as this one is only required if your house or condo is owned or belong to any association.
- Maintenance: Specific costs involve exterior painting, interior painting, and carpet cleaning after a tenant leaves. You will almost always have to clean the property between tenants, and you may also need to touch indoor paint. External painting is rarer –expect the painting to take place every five years or so.
- Marketing & Advertising: Well, this aspect of renting has changed a lot in previous years. Unlike the old times, now you don’t have to publish ads in newspapers or anywhere else. Now, you can simply sign-up on amazing websites like BeMiGuest and your advertisement is done. Now you just have to maintain your property well and wait for the tenants to come and go and come back again.
- Accounting & Property Management Fees: Most of the property management firms typically charge about 10 percent of your rental income. Additionally, to file your personal and rental tax return, expect to pay a minimum of $200 annually for a CPA.
You’re going to have to do some intelligent guesswork about your rental income. You can look at rental sites and get an overview of the rent in your area. It would also be smart to get yourself listed on any property rental website or application like BeMi Guest and get a fair estimate of how much can you earn by renting your property!
Are You Comfortable Being A Landlord?
Rental property is often an exhausting job as you have so little control over what tenants do at home. You can get fantastic tenants on time paying rent and enjoying the house or any other property that you’ve rented. Or you can have tenants who never pay bills on time and wreck the site.
Even if your tenants are great, you’re always going to deal with the stress of having to answer your phone calls, keep up with maintenance, and so on. You can always hire a property manager who makes your life much more enjoyable if you have a good one. But there’s a downside (usually about 10% of your rental income).
Even if you get the best tenants you should assume that when they leave you will probably have to do some cleaning and possibly numerous replacements. It’s quite rare for a stranger to keep your home as you would. But that is not the case on BeMiGuest as any damage to the property done by the tenant or guest will be taken care of by them!
Are You Sure You Aren’t Going To Come Back?
Renting can provide some security if you are relocating because you know you can always return to your home. Selling a house and then buying another house entails costs, so renting your house and moving back in when you return may be cheaper.
Quite often people who aren’t quite sure where they’re taking their life will hang onto their assets. Renting helps them to do this while leaving the door open for future sales. Sometimes the option of selling or renting a home is not just about money, but about life choices.
Does The Future Look Bright?
Another essential point to consider when determining whether your house should be rented or sold would be putting on your crystal ball and looking ahead. What do you think of the next five, ten, twenty years for the location of your home? Are things gonna get better? Will the value of your neighborhood decrease? If the case future looks great, consider renting the property now in order to later regrets.
Of course, we do not have any crystal balls, but it’s not impossible to try and determine where the market is heading towards. Look at your town’s growth— is it shifting away from you or in your direction? Are companies moving to your area? Are new homes being set up or left to rot? You can’t possibly know with 100% certainty, but you can make an informed judgment by examining the current trends in your market.
Taxes, Don’t Forget About Them!
If you’re lucky enough to have an outstanding cash flow from your rent, don’t overlook the tax consequences! Like every other income-generating asset, you will be charged at your regular tax rate on any money you earn from your rental.
Note, though, all the costs involved with renting your home can be written off. For instance, if your gross rental income during the year is $45,000, but you have paid $30,000 in lease expenditures, only $15,000 tax will be charged.
You can also claim a deduction for deterioration on the estate in addition to deducting regular expenses. However, when you have a rental loss, if your adjusted gross income is less than $150,000, you could use the loss to cover some of your profits.
It is a smarter idea to talk to a tax professional about deducting any loss or depreciation for more details because taxes and laws are different across the states!
Why Shall You Rent Your Property?
You can use the payment to cover your mortgage payment when a tenant pays you the rent. In a way, your tenant pays for you in your home to gain equity. You can keep any monthly rent with yourself once the mortgage or loan is completely paid off.
Renting your home or any other property can broaden your investment and revenue streams so you can minimize your financial risk. For instance, in case you lose your job, you’d still have a passive source of income, right? And, if you realize that your pension savings aren’t enough, you have a piece of real estate that you can rent anytime and get money out of it.
What To Consider Before Selling Your Property
You’re Free After The Sale
For the freedom that comes from offloading a substantial investment into your home, there’s something special to say. Selling it instead avoids any of the pressures that come from renting your home out. Selling is still hard, and there’s going to be a lot of effort involved, but you get a payment for your home and move on when it’s all over.
It can be even more advantageous if you move to another state sale. When they feel it, people do not realize the psychological burden of having two homes. It’s not fun to have to deal with renting issues in the middle of the night while in another state.
You Can Escape A Falling Market
If you fear that in the years to come the real estate market will go down the drain, it makes good sense to get out now. Selling your property helps you to gain as much revenue from it as possible, and a lot more money as you would if the market dropped out in the coming years.
You can’t really predict what’s going to happen, of course, so you may be wrong about the future. But if you feel right, it makes sense to sell. You will be likely to invest that money by having the capital from home and hopefully make more. You could potentially be tying up capital by renting that could be used for a lucrative investment.
You Can Always Leverage The Tax Laws
Selling your home right now allows you to take benefit of current tax laws that would exclude your sale from capital gains tax on your own up to $250,000, or $500,000 if you are married. Constraints rely on your tax bracket, but the current law means that most homeowners can escape a reasonably large tax on a huge scale. Change in requirements, which means that this law may change.
By selling now, you know that you can take advantage of the current law. If you have a lot of equity, you could be saved a bit of money by this tax law. Indeed, you may end up doing a happy dance!
Your Old Home Will Pay For Your New Home
One of the main reasons people seem to want to sell rather than renting out their home is because it gives them a substantial cash injection–enough to cover their next house down payment. Well, Having a large deposit puts you in a much better financial situation to buy a home you’d like to live in an area you like.
You Won’t Have To Deal With Tenants
Tenants may be too much to deal with, depending on your personality. The idea of having strangers in the house is probably your most substantial investment–random people who might destroy that investment. You won’t be able to enjoy your life if you can’t stop thinking about what might happen. Not to forget all the other pressures, including having to pay for all repairs and maintenances, which come with owning a property.
You won’t have to worry about any of this stuff if you sell it out. You’re going to get the money for your investment, leaving the current homeowner to worry about what’s going on in the property. After all, dealing with tenants is one of the biggest headaches for some people.
Sometimes people make the wrong choice when making a decision about whether to sell or rent a home. There will be a decision to sell the house more often than not, which is later regretted. Especially in the era of technology & the Internet. Today, there are numerous options available like BeMiGuest which allows you to make the best possible use of your unused old properties. With BeMiGuest, you can rent out your properties of all kinds in a hassle-free way, without worrying about factors like security, payments, and quality of tenants, because BeMiGuest handles it all.
Hence, according to us Renting your property is a better deal than selling it. Because not only do you build a 2nd source of income, you get a sense of financial security & time to pursue things you actually love!
Think about it!