Should I sell my house or rent it out?

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Many home sellers are faced with the dilemma of either selling or renting their home. Here are some questions that you may find helpful in determining your decision.

Are you ready to become a landlord?

The role of a landlord isn’t easy. Becoming a landlord involves sourcing and contracting a renter (performing a background and credit check; determining your screening criteria; preparing rental forms and the rental agreement). You also need to determine if you will hire a property manager or be on the hook for those duties yourself (collecting rent, maintaining the home and yard, dealing with home repairs and tenant issues). Typically it does not make financial sense to hire a property manager if you have just one rental property.

When renting out your property, you do have to be prepared for the tenants to treat your home like a rental. There is a good chance that you will see a certain degree of wear and tear on your home that you will need to repair when you eventually decide to sell.

Additional Info on becoming a landlord can be found here.

What does my local rental market look like?

For what amount do you believe you can rent your home? Are you in a neighborhood conducive to attracting a renter? Will you attract a long term or short term renter? Some homes, near universities for example, are easier to rent. However these neighborhoods tend to attract short term renters only wishing to rent for a semester or school year.

Study your financials

Understand the true cost of renting the home (your mortgage + utilities + insurance + taxes + property management + maintenance) – Will the amount of rent you collect be enough to cover those expenses? If not, will you be able to make up the difference? Be financially prepared to withstand 1-4 months of vacancy comfortably. Vacancy is unanticipated in almost all cases, and can last awhile, depending on the rental market.

What do you believe your current home is currently worth and what will your selling costs be?

Ask your real estate agent to prepare a market analysis for you and estimate your selling costs. Understand your net proceeds should you sell in today’s market.

Do you qualify to buy your next home without selling your current one?

Qualifying for ownership of multiple homes is more difficult than owning a single home. You need to make sure that your lender approves of your debt ratios to own both homes, taking into account the rental income you will receive.

Do you believe the market is going to improve and are you prepared to hold the property for the amount of time to make your desired gain?

One of the dilemmas you are most certainly facing is “Am I missing out on future returns if I sell my home now?” A good real estate agent can help you understand the trends in your area and what the housing prices in your particular region/neighborhood have done in the past 6 months / 1 year / 2-5 years. Although no one knows with certainty what the market will do in the future, you can make some educated guesses based on housing and regional economic data.

Is my money better off in my existing real estate investment, or in another venture?

Consider your conclusion to the previous question. How does your expected rate of return on the rental property compare to other investment options? Be sure to take into account tax implications (capital gains) and interest rates (investment properties typically don’t qualify for lower interest rates).

There is no easy answer to this question, and ultimately it will take some research on your part, as well as an examination of your investment goals.

  • Lenders may also require additonal reserves depending on the type of financing that is being done on a new home and amount of equity remaining on the old home.

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