Should I Rent or Sell My Home?

Male homeowner in tee shirt in front of his neat two story family home deciding if he will rent or sell the home

There are many reasons homeowners sell their homes. Many move up to bigger homes, or relocate for work or family. Usually, selling and moving on is an easy decision.. However, some homeowners may be thinking about keeping their home as an investment, or as a place to return to later. If you are contemplating moving, you may be wondering if you should rent or sell your home. Let’s look at some of the factors and considerations you should address before deciding whether to rent or sell your home.

How’s the Real Estate Market?

The housing market has been hot and prices are up. There is a low inventory of homes on the market, making this a seller’s market. Home prices have increased in many areas due to the pandemic economy, when many home-bound families took advantage of “work from home” policies to move to more desirable places to live, and especially into homes that gave them more space and privacy. But, mortgage rates are heading up, so this will likely impact home prices and dampen the housing market. While it’s not always possible or even wise to try to time the market, some homeowners may consider the ups and downs in the housing market in their decision to put the home on the market. This should be a minor factor in your decision process because so many other factors are involved as well.

Check out home values in your area on real estate listing sites. To get an accurate valuation of your home, you should always get an appraisal from a certified residential real estate appraiser that specializes in your area.  Another option is to request a real estate comp from your agent. FSBO Virginia offers free comps (free with some packages) to homeowners selling in our listing areas of Virginia, DC and Maryland. Comps look at homes similar to yours in your neighborhood and make adjustments for differences. Comps are a good way to figure out a listing price for your home that puts you in a good position to find the right buyer at the right price quickly. Some sellers are not very good at being objective when pricing their home with comps so we strongly suggest an appraisal.  You can also use this sales price when deciding whether its better to rent or sell the house.

How’s the Rental Market in Your Area?

How much can you charge for your rental? Rent prices are up in many markets but down in others, especially after the pandemic which disrupted where and how people work. Make sure you understand rent prices in your area for similar properties, as well as occupancy rates and demand for rental homes. Your property management company is probably most qualified to give you that answer as he or she will know your local market and neighborhood well. You can do your own research with rent pricing tools such as Zillow’s.

Sell or Rent: Which One WIll Make You More Money?

Cash is king, as they say. Now that you understand the real estate market in your area and can estimate some prices, you’ll want to do a financial analysis of whether renting or selling will bring you more cash. Of course, if you are moving out of your primary home, and want to buy a new home, you may need the cash out of the first home as a down payment. If that’s the case, selling your home is the best way to go.

If you don’t need cash immediately from the sale, then the next step is to decide if renting it out is going to be more profitable in the long run than selling it today.

First, figure out how much cash you will get if you sell today. Don’t forget to deduct the repair and other costs of readying your home for sale. And figure in your closing costs. You will pay a seller commission as high as 6%, or, using a for sale by owner website like FSBO Virginia, you can pay a lot less, even no commission, to net even more cash from the sale.

Now, look at the rental side. A good rule of thumb is a five-year rental period. Calculate your rental income (after mortgage principal and interest, property taxes, upkeep and property management fees) over a 60 month period. Don’t forget to factor in appreciation of the home and how much lower your remaining mortgage will be when you do finally sell the home.

Don’t forget about taxes. If you have lived in your home two of the last five years, you can recognize a gain on the value of your home tax free when you sell, up to $250,000 ($500,000 for a married couple). As a landlord, unless you move back into the home for two years, you will have to pay capital gains tax on the gain on the property. If your home has appreciated substantially since you bought it, talk to your tax advisor to get their input for your decision. He or she can also help you calculate the tax benefits from depreciation on the property over the rental period.

Now, which scenario makes you more money?

Here’s a way to make this easier. Use this Rent vs Sell calculator to get a quick idea on whether turning your home into a rental property makes sense.

Is Your Home a Good Rental Property?

Is your property a good rental candidate?  A successful rental is in good condition and not too small or too large, to appeal to more renters. It has amenities that renters want, such as up-to-date kitchens and appliances, lots of storage space, is pet friendly and has an attractive, easy care outdoor space they can enjoy. The home should be in a location convenient to jobs and schools, and of course be secure.

Keep in mind the age of your home. Older homes can need a lot more in the way of upkeep as the years go on. And fixes like a new roof, replacing heating or air conditioning units, or a major plumbing or electrical issue can wipe out months or years of rental income. If you aren’t ready to deal with an aging home, now’s the chance to sell it.

Do you Plan to Return to Your Home?

Sometimes properties have sentimental value or otherwise may figure into your future plans. If your home is one you want or need to return to at some point, renting it out is a good way to offset your costs of ownership. Just be aware you may need to set aside a sum of money to restore the property to your own tastes when you move back in. This also applies if you decide to sell the home later. It will need some post-renter restoration. 

Are You Ready to Be a Landlord?

If you are a homeowner with little in the way of cash reserves, becoming a landlord may be a risk you want to avoid. There is always some “emergency” for which swift cash outflows will be needed – the renter moves out and the property is vacant for a period in which you still have to pay the mortgage, utilities and taxes. Or the occupant fails to pay the rent and eviction is needed. There may be a middle-of-the-night emergency repair that you have to pay for, and quickly.

Being a landlord can be hard. Finding reliable tenants, handling maintenance and repair costs, keeping up with local regulations, and dealing with other day to day issues that come up can be challenging. Evicting someone can be a hard thing to do. Some people enjoy these challenges while others may not. This is something to decide for yourself. Property managers can shoulder much of the work, but you will still be making the decisions and paying the bills.

When is it Bad to Rent Out Your Home?

There are some instances when renting out your home would be a mistake. The biggest, of course, is that it would generate negative or very low cash flow that would cost you money rather than making you money. This may be the case if you have a large mortgage that will be hard to cover. Or, in the case the home is not a suitable rental property and it will be hard finding renters at a high enough rent. It could also be a problem if rents and/or occupancy are just generally low in your area. If cash flow is minimal and housing appreciation over time in your area is also low, there’s little reason to hang onto a home that is not going to return much if you hold onto it.

If You Decide to Sell Your Home

If you have a lot of equity in the home, and you don’t have your heart set on becoming a landlord, you may have decided that selling is the better choice. Getting that chunk of cash out allows you to put it down on the purchase of a new place, or maybe invest it elsewhere, where there are fewer expenses of ownership and less work involved.

For a seller, the biggest closing cost is the real estate fee, up to 6% of the selling price of the home. Selling For Sale by Owner with FSBO Virginia can save thousands. By listing your home on the MLS and our For Sale By Owner Website (FSBO) with us, you can get even more cash out of the property than if you use a traditional agent. Many savvy sellers opt for an FSBO sale to maximize their return on the property, making it a great alternative to the bigger commitment to turning the home into a rental property. And, with online tools, a low flat fee MLS listing, video training and more, it’s simpler than you may think. For more information on how easy it can be to sell your home For Sale by Owner, contact Realtor, Deb Kent today.

Author: Debbie Kent

Debbie Crevier-Kent began her career as a licensed Real Estate agent. Seeing the need for lower real estate selling costs, she created easy to use FSBO service packages, starting in 1994. Ms. Crevier-Kent is a member, and and a member or NAR, NVAR, REIN, BRIGHT, WAAR, and CAAR

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