You buy a house, which is wonderful, but then eventually you need to move on to something else. Perhaps you’ve chosen to relocate, or perhaps your employer has forced you to do so. In any case, you’re faced with a dilemma: what to do with your old home?
If you opt to rent out the last house, owning two properties can really work and be lucrative. You may start generating real wealth through cash flow and equity if you maintain the residence. However, there are expenses to consider when deciding between selling and renting.
We’ll go through the things to think about when considering whether to sell a house by owner or rent it out.
Is there a chance that this property will generate a positive cash flow?
When determining whether to rent out or sell your home, the first thing to consider is the math. We recognize that math was probably not your favorite subject in school, but thankfully, real estate investing arithmetic can be understood by anybody with a fifth-grade mind.
In other words, will this property create a monthly profit or a loss when rented out, after all, related expenditures such as the mortgage, insurance, taxes, utilities, vacancies, management, and repairs are deducted? Consider selling if you’re facing a loss.
Consider your return on investment
Consider how much money you’d make if you sold the house today, assuming you’d lose 10% to agent fees, closing charges, and other expenditures. If you’re just going to make a little profit, it could be better to keep the property and wait for the market to improve over time. This is especially true if the property will generate a profit in the interim. Consider your return on investment if you would earn a profit by selling.
Think about the taxes
I disagree with many things the US government does, but one thing I adore is the possible exemption from paying capital gains tax on the sale of your main house.
If you sell real estate for a profit, you’ll usually have to pay capital gains tax, which may be as high as 20%, depending on your tax status.
On the other hand, the IRS enables homeowners to deduct up to $250,000 on the sale of their principal house provided they resided in it for at least two of the previous five years. Of course, retaining the property increases the chances that it would rise in value over what the tax would have been, but there are no certainties for real estate values.
Is the Future Promising?
Looking into the future is another essential element to consider when considering whether to rent or sell your home. What does the future hold for the location of your house in the next five to twenty years? Is the situation getting better?
Will the value of your neighborhood drop? If the future is bleak, consider selling now to avoid future problems. We can’t see into the future, but predicting where the market is headed isn’t impossible.
Take a peek at how your city is growing. Is your neighborhood attracting new businesses? Are houses being repaired, or are they being let to rot? You can make a better-educated judgment about whether to hang on or sell now by examining current market patterns.
Are you interested in becoming a landlord?
To be honest, many individuals aren’t made out for being a landlord. While some renters are a breeze to handle, others need a substantial amount of work and patience. Fortunately, being a landlord is a talent that can be acquired and developed.
All new landlords make mistakes, but if you’re ready to learn from your mistakes, you’ll be OK. Also, just because you own rental properties doesn’t mean you have to deal with the renters and quarterly rental inspection checklist yourself. Professional property management businesses can be found in almost every city, and if you can locate a good one, they may reduce the burden of owning a rental property to a minimum.
To sell or not to sell?
Is it better to sell and move forward? Should you sell it or rent it out? Why rent your first house when you buy your next home? As with most real estate questions, there is no right or wrong answer to any of these questions but you can make the best decision for your scenario once you understand your alternatives.