Rent vs Sell
Should you rent your home instead of selling it?
Moving to a new home often involves a delicate balancing act of purchasing a property while finding a buyer for the home you are vacating. Depending on your situation, though, you might decide that it is more prudent to find a renter instead of a buyer.
Renting a home can easily turn it into an investment property, bringing in enough income to cover the mortgage and set some money aside. But you'll need to decide if a rental will provide you with a reliable source of income, and whether you are prepared for the responsibilities of managing the property.
Everyone sells for their own personal reasonS, and some of these reasons will be more conducive to rentals than others. Dona Dezube, writing for the National Association of Realtors' home improvement site HouseLogic, says it can be cheaper and less hassle to rent your home if you expect to return within a few years. For example, you might be temporarily transferring to a new location for your job. You can also avoid the capital gains tax if you used the home as your primary residence for at least two of the past three years.
It is especially important to calculate whether you can afford the costs of your former home while paying the rent or mortgage for a new residence. Cathie Ericson, writing for the National Association of Realtors, says you should be able to manage the costs of two homes. Renting will bring in some monthly income, but you may also have to cope with periods where you are unable to find a tenant.
Many homeowners plan to put the money from the sale of their previous home toward the down payment on a new residence. You'll have to rely on other resources for a down payment if you decide to rent, but there are still options to help you out. For example, Dezube says you take out a home equity loan to finance the purchase of your next residence.
Renting your home also means you'll have to take on the duties of a landlord. These include setting and collecting rent, repairing any problems at your former home, and potentially evicting troublesome or delinquent tenants. You'll also need to look into any particular licenses or rules that apply to renting out your property and consider whether you'll be able to manage a rental property if you are moving a long distance away.
Determine whether the home will produce enough income to justify renting it. Look at comparable properties in your neighborhood to see what a fair monthly rent is for the area and home amenities. Brandon Turner, writing for Forbes, says you should subtract all of the home's other costs—such as insurance, taxes, and any utilities the tenant won't be paying—to see if the rent can cover the monthly mortgage payments. If not, it might be better to list the property for sale.
Equity should also be a major consideration. Michele Lerner, writing for the financial site Bankrate, says it is a less risky choice to sell if you have significant equity since you're likely to net a nice profit. However, you might also be able to realize more money from the property if you have owned the home for a long time and have lower mortgage payments and a small loan-to-value ratio.
Look at the housing and economic conditions in your community to determine how home prices might change in the coming years. Real estate agents can give you input on the local market trends and whether you're more likely to profit from selling or renting your home.
Consider the condition of your home. Jaymi Naciri, writing for Realty Times, says renters are more likely to be forgiving of outdated styles and features as long as the home isn't seriously deteriorating. By contrast, selling a home often involves investing in these upgrades to make the property more competitive on the market.
You can also consider an arrangement that balances both selling and renting. The real estate site Redfin says rent-to-own agreements allow a tenant to put down a certain amount of money on the home and pay monthly rent for a period of time. At the end of this period, they can choose to buy the property, with their initial deposit and accumulated monthly payments counting toward the down payment for the sale.