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Life sometimes has a way of catching up with us and making us do things we were not planning to do. Moving homes is one such thing. The reasons could be many. You need a larger home for the family. You got a new job in a different city. Or maybe you need to move to a smaller space to tide over some rough times. Whatever the reason may be, it puts you in a spot. What should you do with your current home? A lot of homeowners ask themselves, “Should I sell or rent my house?” A comparative analysis is the easiest way to decide the best options.
What Selling Your House Entails
While selling your current home may seem to be the quickest solution, let’s take a closer look at what the home sale will entail.
1. You Get Paid
Whether you’re moving away to a different city or to a smaller house to make things easier financially, selling your home will seem to be a more profitable option, especially when it comes to your cash flow situation.
Money in your pocket means you may be able to afford down payments or more on your new home.
2. Tax Benefits
According to taxation laws, you do not have to pay capital gains tax for up to $250,000 from the profit when you sell your house. That number doubles to $500,000 if you’re married. If you have a decent amount of equity already in the home, you could end up pocketing a large chunk of money after paying off the closing costs and other fees.
Of course, you need to have lived in the home for at least two years prior to the sale of the property for these tax benefits to apply.
3. No Unnecessary Speculation
The real estate market is a volatile environment, fuelled by speculation and changing constantly based on various factors. By selling your property, you are eliminating the pressure and uncertainty that comes with real estate market fluctuations.
4. No Tenants to Bother About
A home is a large financial investment, one that you probably put your blood, sweat, and tears into shaping. Leaving that to the mercies of tenants who are, in all possibilities, complete strangers, is not everyone’s cup of tea.
If you cannot deal with the stress of not knowing if your home is being taken care of well, of running behind delayed rents, and having to spend on maintenance for a home you no longer live in, you may be better off selling your home.
What Renting Out Your Home Entails
Converting your primary residence into rental property has its own benefits and pitfalls. Let’s take a quick look at some of them.
1. You Will Have Rental Income
Converting your home into a rental property means you will have rental income, even if you still have a mortgage on it. While this may seem to be a positive thing, the extra income isn’t without liabilities.
Ideally, the income from renting out your home ought to be able to cover existing monthly mortgage payments on the property and allow you to put aside between 10% to 20% of your annual rental income towards home maintenance.
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2. You Will Have More Expenses
Maintenance isn’t the only expense you will need to bear on your rental home.
You will still need to pay income tax on your rental income, property taxes, HOA fees (if applicable), home insurance, real estate agent fees if you used one to find a tenant, and more.
Keep in mind, there is no guarantee that you will always have tenants when you rent out your house. Not having a rental income will not get you off the hook from bearing these expenses.
3. You Could Hire Help
As a landlord, there’s no telling what kind of tenants you will eventually rent the property to. You could get wonderful human beings who will care for your home like you did and pay you rent on time. Or you could get awful tenants who won’t pay rent on time and will most likely wreck your home before they vacate.
If you don’t have the temperament to deal with tenants, you could always hire a property manager to collect your rent for you. Most property management companies charge management fees of around 10% of your rental income for their services.
4. You Will Always Have Another Asset
One undeniable benefit of renting your home instead of selling it is that you will always have an extra asset. Over time, you could end up with a valuable piece of real estate that will pay you for your troubles handsomely.
And of course, if you’re going to be renting a new home instead of buying a new one, you could always come back to your old home if the need ever arises.
So What Should You Do?
Well, truth be told, there is no definite way to answer this question. A lot of homeowners rush into renting out their old home without being entirely prepared for the trials and tribulations of being a landlord. Others sell their homes in their eagerness to start afresh, only to find out that new beginnings aren’t always as magical as we make them out to be.
The right thing for you to do would be to give it a considerable amount of thought before decking whether you’re renting or selling your home.