Selling a home in Utah can be a time-consuming and discouraging process, and one that many homeowners don’t want to deal with. If you’re thinking about leaving your old home for a new one – to upgrade, to downsize, relocate, or other reasons – there probably one thing significantly weighing on your mind:
Should I rent my house, or should I sell it?
Figuring out weather to rent or sell your house is a big decision and there is no easy answer. Each option has advantages and disadvanteges that you must weigh carefully before deciding.
Which of these options is best will depend on some factors, you should consider each of them and weigh them against your personal preferences to determine which is right for you.
Lets take a look at what you need to know about selling and renting!
Things to Consider About Renting You Home
Will Renting My House Be Profitable?
Something that is need to know if renting out your home will generate positive cashflow or if it will slowly suck you dry. You determine this to add up all the expenses of renting out the home and subtract them from the money you will make from being a landlord.
Lets take a look at some expenses when renting a home:
- Mortgage – calculate both the principal and interest into the equation.
- Insurance – Almost every year, insurance rises. Keep this in mind.
- Repairs – repairs are almost a certainty. Remember Murphy’s Law.
- Taxes – In most areas, taxes don’t go down.
- HOA fees may or may not apply to your circumstances if there is no HOA for your neighborhood.
- Management fees – (if you hire a property manager).
- Vacancies – don’t expect to maintain full occupancy the entire time.
- Real Estate Commission – are you going to be paying a real estate agent to rent the property? Agent fees are generally between a half month and
- months rent.
- Advertising – if you are renting your property without using an agent, don’t forget about advertising expenses.
- Miscellaneous – don’t forget about other more minor expenses like credit checks on tenants.
You will have to do some educated guesswork on what your rental income will be. It would help if you also considered long-term rent prices. Will they go up or down? In most places, rental prices have been going up, much like real estate values.
Hiring a Property Manager Can Eat Into Your Profit
When moving to a new location, hiring a property management company is generally a good idea, especially when you’re moving to a far away location. Rental properties are difficult to manager when you are not in the immediate area.
However, rental homes come with additional costs and property management fees can eat into your potential profits. Depending on the local market, you can plan on paying around 10 percent of the monthly rent to the property manager.
The monthly profit might not be what you would like to get. Hiring one of the local property management companies might not be an expense you can afford at this time.
Are You Okay With Being a Landlord?
Rental ownership is often stressful because you have so little control over what tenants do in your home. You may get great tenants that pay rent on time and respect the property. Or you may get tenants who are disrespectful to you and your property.
Even if your tenants are decent, you will still deal with the stress of needing to answer their phone calls, keep up with maintenance, etc. Nobody ever said being a landlord is easy.
Do you have the stomach to chase problems like late rent or deal with the water heater that gave out in the middle of the night?
As mentioned, you can always hire a property manager, making your life much more comfortable if you have a good one. They can save you from doing a lot of work.
Even if you get the best tenants, it will be expected of you to do some touch up on the property. It is quite unusual that a tenant will maintain your home as you would.
Are You Coming Back?
If you are relocating, renting can provide some security because you know you can return home. Selling a house and then buying another home incurs costs, so it may be cheaper to rent out your house and move back in when you return.
Quite often, those who are not sure where their lives are taking them will hold onto their property.
Renting allows them to do that while keeping the option open to selling in the future. Sometimes the choice to sell or rent a home isn’t just about finances but of life decisions.
Is the Market Going up in the Future?
Your home’s value should be a significant factor in your choice of renting out or selling your home. You should analyze your current home value and what it could be in the future
A real estate agent should be able to help you analyze the local housing market to determine if home prices are expected to be higher. While no agent can pull out their tarot deck and predict the housing market’s future, there should be factors that point to the local market heading in one direction or another.
Maybe there are home improvements that you know you’ll need to make but don’t have the money right now? If this sounds like the case, renting could be a good option. Renters are not like buyers because they will accept specific improvements that need to be made. Buyers, on the other hand, can often be pickier.
Don’t Forget About Taxes
If you are fortunate to have excellent cash flow from your rental, don’t forget about the tax consequences! Like any other income-producing asset, you will be taxed on any income you get from your rental at your ordinary tax rate.
Property taxes are another expense that can eat into your profits.
Keep in mind; however, you can write off all the costs associated with renting your home. For example, if your gross rental income for the year is $45,000, but you incurred $30,000 in rental expenses, you will only be taxed on $15,000.
In addition to deducting regular expenses, you can also claim a deduction for depreciation on the property as well. Further, if you have a rental loss, it’s possible you can use the loss to offset some of your income if your adjusted gross income is less than $150,000.
Always speak with a financial advisor/tax professional for more details on deducting any losses or depreciation. Tax deductions should always be factored into whether selling or renting a home is the better option.
Did You Ever Want to Have a Rental Property?
Do you wish to own a rental property but have never had the opportunity? If this describes you, renting a home could be an excellent option to dip your toe into the water. Maybe you’ll fall in love with it. If that’s the case, you could be able to buy more houses in the future.
However, you may discover that owning a rental property is something you loathe. With a home you already own, you may learn through trial and error.
While renting your primary residence is unique, it does allow you to get experience with the rental process. You’ll want to make sure you’re up to date on any important local laws. A realtor or a property manager can help with this.
You Get to Walk Away After The Sale
There’s much to be claimed for the sense of liberation that comes with offloading a large investment in your existing home. By selling your current property instead of renting it out, you can avoid all of the hassles that come with doing so.
Selling your primary house is still difficult, and there will be labor involved, but after it is over, you will receive a check for your home and be able to move on.
Selling your home can be even more advantageous if you are migrating to another state. People are unaware of the emotional strain of having two homes unless they have lived through it. It’s not fun to have to deal with rental issues in the middle of the night while in another state.
A property sale relieves you of that responsibility. There won’t be a second home to worry about!
You Can Escape a Dropping Real Estate Market
If you believe your local real estate market will tank in the coming years, now is the time to get out. A seller’s market cannot persist indefinitely. When the real estate market has been steadily rising for many years, current patterns are unlikely to continue.
Selling your home allows you to get as much money as possible out of it, far more than you would if the market collapsed in the following few years.
Of course, no one can forecast the future perfectly, therefore you may be wrong about the future. Who knows if a housing bubble will form or not. However, if you believe you are correct, selling makes sense. You’ll be able to invest the money you’ve saved by having equity in your home, and maybe generate more money.
You could be locking up money that could be put towards a profitable investment if you rent. Is your financial condition going to improve if you don’t have an investment property?
Take Advantage of Current Tax Laws
Currently, selling your house allows you to take advantage of current tax regulations that exclude your sale from capital gains tax up to $250,000 for singles and $500,000 for married couples. Limitations vary depending on your tax status, but most homes can avoid a substantial tax on a large sale under current legislation. It is one of the most advantageous tax advantages of home ownership.
Tax deductions should play a significant factor in deciding whether to rent or sell.
Requirements vary, so this legislation may change as well.
You’ll be able to take advantage of the present law if you sell now. This tax law could save you a lot of money if you have a lot of equity. It’s possible that you’ll wind up doing the happy dance as a result of it!
The tax ramifications will be different if your present home is no longer your primary residence because you have purchased a new property. Because the home is no longer a main residence and has become an investment property, capital gains taxes will change.
Knowing whether or whether you owe capital gains tax on your second house will be critical. Taxes should always be considered while making a decision. Everyone’s situation is unique, but income is a constant.
You’ll Have a Down Payment For Your Next Home
One of the most common reasons people opt to sell rather than rent their home is that it provides them with a substantial cash infusion that can be used to fund the down payment on their next home. A large down payment puts you in a much better financial position to buy the home you want in the neighborhood you want to live in.
If your credit isn’t great, a large down payment can help you buy a new house.
You Won’t Have Tenants to Worry About
Having strangers in what is likely your most significant investment – strangers who could destroy that investment – may be too much for you to handle, depending on your personality. You will not enjoy your life if you cannot stop thinking about what can happen. Not to mention all of the other responsibilities that come with renting, such as paying for any repairs and maintenance.
Because repair costs are not tax deductible, they can be a financial burden.
You won’t have to worry about any of these things if you sell. You’ll have received the funds for your investment, leaving the present owner to fret about the house’s fate.
Dealing with tenants is usually one of the most significant considerations when renting or selling a home.
Choosing between renting and selling a home is not a decision to be taken lightly. You’re about to make one of the most important decisions of your life. Frequently, hasty judgments are made without considering the benefits and drawbacks of renting vs. selling. Hopefully, the information offered above will assist you in making an effective decision for your specific situation.
The decision to rent or sell a house is frequently based on an individual’s specific circumstances. It is now up to you to decide which option is the superior one.