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Both renting and selling can be profitable for you, but what's the best option? That depends on various personal and economic factors. Knowing what to consider before you make a decision can lead to the most beneficial outcome, and here are crucial points you have to go over first.
Rent vs Sell: What to Consider
Local Housing Market
Assess the local real estate market to learn if the current market conditions can get you the best price for your property. If there's high demand for housing and your property is in good condition, you can easily sell it for a higher price. If you're unsure how to conduct proper research, consult a real estate agent for expert insight.
Rental Demand
Even if you're leaning towards turning your house into a rental property, there are several factors to check first, such as rental demand in the area. Without a thriving rental market, your investment property won't be able to find new tenants and you might have negative cash flow. Consider factors like the home's location and condition as well.
Financial Goals
Your financial situation plays a huge part in your decision. If you need immediate funds, selling may be the better option. If you are looking for a long-term investment, getting passive income from a rental property will suit your needs.
Time Commitment
Managing properties can be time-consuming even for a seasoned landlord, so you must understand the responsibility of owning a rental property. The tasks that will fall on you include:
- Background and Credit Checks
- Marketing
- Rent Collection
- Maintenance and Repairs
- Accounting
- Regular Inspections
- Evictions
Of course, you have the option of hiring residential property managers for your rental property to maximize your rental income potential without lifting a finger. It can be worth it especially if you are new to being a landlord and may need to learn the ropes first.
Property's Condition
If the property needs major repairs and renovations, you might end up spending more than you earn due to a sizable initial investment. Poor property conditions can make it difficult to attract tenants, and those who do rent may refuse to pay if essential repairs are neglected.If you're unwilling to invest in repairs, selling may be the better choice.
Tax Implications
You should understand that there are different tax benefits and liabilities whether you decide to sell or rent your home. If you're unsure about the tax implications, consulting a tax professional can help you make an informed decision.
Emotional Attachment
Selling your property is a difficult decision, especially if it's your dream home. If you want to hold on to your current home, it makes sense to turn it into a rental property, since you can still make it your primary residence, depending on what type of property you have. While this isn't the most important thing in home deciding, it's still worth considering.
Benefits of Renting
- Passive Income: Earning rental income can be a good source of revenue, especially if you still have mortgage payments.
- Potential Appreciation: It's not guaranteed, but your home value can appreciate over time depending on market factors and characteristics.
- Tax Advantages: Landlords can deduct various expenses like mortgage interests, property taxes, maintenance costs, and depreciation.
- Flexibility: You can maintain your assets while still earning. You can exit the rental business once you earn the money you need and turn it into your house again.
- Diversifying Investments: Keeping one property even after buying a new home lets you diversify your investments.
Benefits of Selling
- Instant Cash: Selling provides immediate funds, unlike renting, which takes time to generate profit.
- Less Stress: Management responsibilities can become very stressful, and it is entirely possible to avoid it when you sell instead.
- No Ongoing Expenses: You won't have to pay for additional costs on top of your mortgage payments such as repairs, maintenance, marketing, and other rental-related expenses to keep it running.
- Freedom to Relocate: When your next home is far from the current home you intend to turn into a rental business, you might not have the luxury to relocate due to the difficulty of managing a rental from a distance.
- Reduced Financial Risk: A rental property's profitability is not a guarantee, and you might end up losing more money if you fail to find and retain tenants.
Sell or Rent FAQs
What other options do I have?
If the key takeaways are not enough to help you decide, you can look into rent-to-own options, which is exactly as it sounds. Your tenants will rent the place until it is paid off. The difference is you'll have an exit strategy at the ready instead of an indefinite commitment to a rental business.
What are the tax implications of renting or selling my house?
Renting offers tax deductions for expenses, which can reduce your burden, while selling may result in capital gains taxes. As mentioned before, consulting a tax expert is still recommended to find the right information.
What are the costs associated with renting and selling?
The costs for renting are more significant since you'll worry about repairs and cosmetic upgrades, but it's a possible long-term investment. With selling, you'll have to factor in real estate agent commissions and closing costs.
How to calculate the return on investment (ROI) for renting?
You can conduct rental price analysis and compare it to the overall costs of turning your home into a rental business. You can consult a real estate expert or a property management company, or use CRM Properties' free rental analysis tool.
Let CRM Properties Help You Either Way
Whether you plan on selling or renting, CRM Properties can help you in both ventures. We have a team of experts who have the knowledge and skill set to help guide you with whatever you decide. Between professional property management and real estate sales, we got your back.
Feel free to contact us and learn more about our extensive services and make this journey easier for you!