To Sell or Rent Your Home

There are several reasons to move from one home to another. According to the Census Bureau, some of the most common reasons to relocate include finding a house that is newer, nicer, bigger, more affordable, in a more desirable neighborhood, or closer to work, among other factors. Most individuals think about selling their home when they decide to move, but for some, renting out the home is also an option. Let’s break down the costs associated with selling a home versus renting the property to a tenant and discuss the signs pointing to whether it is more feasible to sell or rent out the home.

Costs Associated with Selling a Home

Selling a home can be a major time commitment, especially if you try to sell it privately without a real estate agent. However, most sellers do not sell their homes privately. Taking that into account, below is a list of the most common costs associated with selling a property with the help of a real estate agent.

  • Real estate costs – Average between five and six percent of the sale price. A $300,000 sale price would cost roughly $15,000 to $18,000.
  • Closing costs – Title insurance, property and transfer taxes, and attorney fees, if applicable, are typically covered by the seller.
  • Mortgage payoff – Be sure to factor in the remaining balance of your mortgage before calculating how much you will receive from the sale of the home.
  • Home improvement costs – When selling a home, especially in a buyer’s market, you may need to invest in repairs and home improvement projects to receive the offer you are seeking.
  • Home staging costs – The living room, kitchen, master bedroom, and dining room will receive the most attention. Consult with your real estate agent to decide what needs to be done to professionally stage these rooms.

Costs Associated with Renting a Home

Renting your home to a tenant can be lucrative in the long term if you have the financial flexibility to cover all the costs associated with owning more than one property. It is crucial to think through all the costs before you decide to keep the home, including:

  • Monthly mortgage payment – You will have to cover more than one mortgage payment and account for possible vacancies between tenants.
  • Property management costs – If you decide you do not want to be involved in managing the property, you will have to factor in the cost of hiring a property manager.
  • Homeowners insurance, property taxes, and HOA fees – HOA fees are not applicable for many homeowners, but homeowners insurance and property taxes will still need to be paid.
  • Maintenance and repair costs – You should budget roughly one percent of the home’s value each year to cover maintenance and repairs.
  • Wear and tear to the property – Renters do not always treat homes with the same level of care as homeowners, which can add additional costs to the budget for maintenance and repairs.

Signs You Should Sell Your Home

There are certain conditions that make it more advantageous to sell your home than to rent it out. Selling is the safer option for most individuals, but some are more comfortable with risk than others. If several of the points listed below are true for your specific situation, then selling is likely the best option for you.

  • It is a seller’s market – If supply is limited and demand is high in your area, buyers may be willing to pay a premium for your property.
  • You would not be able to charge enough rent to cover the costs – Consider whether you could cover the mortgage, homeowners insurance, taxes, maintenance, etc. with what you would charge for rent.
  • You do not have enough liquid cash saved up – If you do not have enough cash on hand to cover repairs and to account for vacancies between tenants, then being a landlord will prove to be a difficult task.
  • You have other plans for the equity you have built up – Do you have a big purchase you would like to make with a portion of the money you would receive from the sale of the home?
  • You do not want to become a landlord or pay a property manager – If you are not ready for the time commitment required to be a landlord or are unwilling to pay a property manager, then it is not a good idea to rent out your home.

Signs You Should Rent Your Home

In the same way that selling a home makes perfect sense to some homeowners, becoming a landlord can be a great fit for others. Examine the signs you should rent your home below and determine whether or not they sound like selling points to you.

  • Rental demand is high in your area – If the town is experiencing job growth, is close to a university, or the population is increasing, there could be significant demand for rental properties.
  • You have a strong attachment to the home – If you are relocating for a job or have a strong desire to keep the home in the long term, then it might make sense to rent it out temporarily.
  • The home is appealing to renters – Short-term renters are often drawn to properties based on the number of bedrooms, views, and available amenities, such as a pool. Long-term renters usually look for the same things as buyers, including location, proximity to the office, good schools, and new or updated appliances and fixtures.
  • You are confident you can be a landlord or are willing to pay a property manager – If the benefits of owning multiple properties outweigh the costs of managing multiple properties for you, then it might make sense to rent the home.
  • The amount you charge for rent can cover the mortgage, insurance, and property taxes – If your mortgage is $1,500 per month and your property taxes and insurance total $500 per month, it may be worthwhile to rent the home if you can charge more than $2,000 per month.

Ultimately, the decision to sell or rent your home primarily comes down to whether it is financially feasible for you, how much risk you are comfortable with, and the level of responsibility you are willing to take on to become a landlord. Be honest with yourself about these factors before deciding.

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