Moving to a new home can be exciting but also stressful. You’ll have to decide whether you’ll leave your old house for good, or if you’ll rent it out for income. There are advantages and disadvantages either way. Here are some tips for determining whether you should rent or sell your home.
Cost vs. Profit and Becoming a Landlord
Keeping your old home involves ongoing costs. Unless it’s paid off, you’ll still have to pay the mortgage. Property taxes are a given, as are maintenance costs. You’ll have to add new insurance to cover you as a landlord. Renting your home turns you into a real estate investor: your old home becomes your business, and real estate businesses have added costs. You’ll pay business income tax and incur costs for marketing and accounting. If you want the income, but not the hassles of becoming a landlord, you can hire a property management company that provides maintenance, collects rent, and handles tenant rental services.
Once you’ve determined how much keeping and renting your home would cost, figure out if your profit will exceed that cost. Research similar rental properties to see what comparable homes are getting in rent. Although many expenses related to renting your home may be deductible, you’ll be taxed on income above your allowable deductions. Run a rental calculator online to estimate how much income renting your house could bring.
Market Conditions and Your Need for Cash
In most cases, buying a new house requires a substantial down payment. If the only way you can raise the down payment for a new house is by selling your old one, it looks like you won’t be renting out that old house. If your house has gone up in value, find out if, when you sell, capital gains will be tax-free or if your gain is so large you’ll have to pay taxes on it. Consult a tax professional for advice on the tax implications of renting or selling your home.
Assess current market conditions for selling your house. Keeping your home might be a smart choice if you expect it to continue to appreciate. But it may also cause you to miss a market uptick that could result in a big infusion of cash for you. Conversely, holding on to your old home may leave you holding the bag if the local real estate market turns sour.
Cutting Ties or Coming Back
Selling your house gives you a clean break. You can move on to your new home and leave your old house and its quirks behind. But if you are relocating with a plan to come back in the future, you’ll want to keep your home and earn income on it until you come home again.
Deciding whether to rent or sell your home is primarily a financial decision. However, don’t downplay the emotional aspects of leaving for good.