It can be difficult to decide whether it is better to rent a house instead of selling it or if it’s more profitable to put it back on the market. There can be many determining factors to be weighed and it’s really an individual decision based on your particular level of involvement. Renting and selling both have their own set of risks and benefits. Renting has to be looked at as an investment and you’ll need to decide if it is in a situation to appreciate or depreciate over time. Here are a few of the more prominent concerns that are raised when you are trying to decide whether to rent or sell your property.
Consider the State of the Current Market
Before deciding whether to sell or rent out your house, it’s important to carefully evaluate the conditions of the current market. Ultimately, it’s important to know which is the more profitable decision. Take a realistic look at the neighborhood where your house is located. Are there other rental properties located in the same neighborhood? Compare the other properties and similar properties that have been rented out over the last six months to a year. This will take some research, and you may want to discuss the local property values and rate of appreciation or depreciation with a licensed broker or real estate professional.
Looking at these factors will give you some idea of what to expect over the long term. You can estimate your property’s future value based on the trends over the last three or four years. If the values are declining it might be best to sell if you want to make a profit. Making a profit will become less likely if the neighborhood market is declining. Using an online calculator can give you a good idea of whether it’s better to sell or rent your property.
Consider the True Cost of Renting
If you choose to rent a house instead of selling it, you will need to think about what it is really going to cost you and what to be aware of when renting a house. Sometimes it’s not monetary values you are looking at, it’s things like having to get up in the middle of the night to go check on a plumbing emergency. There is always the possibility you will have to evict a tenant at some time, are you ready for the emotional upheaval that will be involved? Are you prepared to deal with terrible tenants who do not make their payments on time; or residents who destroy the house and leave it in a mess for you to clean up? These are all very real situations that you’ll have to face at some point if you choose to be a landlord.
There are also financial costs associated with renting out your property. The law protects tenants and requires that rental property be maintained to a certain standard. This means that as a landlord, you will have to be financially prepared to make any repairs to keep the home up to a certain standard. Heating and air units, hot water heaters, roofs, garage door openers and garbage disposals are all items that may need to be repaired along the way. They tend to deteriorate with use and it’s the owner’s responsibility to make sure they are repaired and in good working order. You’ll also have to carry insurance for natural disasters that might occur in your region. All of these are expenses that need to be considered before you determine the answer to the questions: Is selling better than renting? Or should I go ahead and sell the house?
Consider the Rights of Tenants and any Renting Restrictions
Every state has a set of laws regarding tenants and landlords. There are often local ordinances enforced by cities as well. These rules are in place to protect both the tenant and the landlord. They stipulate when and why a landlord can access the property, how and when an eviction can take place, how often and how much rent can be increased, and how to return security deposits. These types of regulations can have a huge effect on the profitability of a rental investment. While they are in place to protect both landlord and tenant, they can reduce how much profit you make on the property. For instance, in some states or regions rent can only be increased by 1 or 2% each year. This might not be enough to cover costs you incur.
Consider the Taxes You’ll be Responsible to Pay
If you have rental property and you get an income from it, you will be assessed income taxes. They are considered as income just like any wages you would get from a job, or dividends you may receive from stocks. The good thing is you can write off costs that you incur if they are associated with renting the property. One example is if in a year you gross $40,000 worth of rental income, but you ended up incurring $30,000 in expenses associated with maintaining the rental, you will only be taxed on the $10,000 you actually made. You can also claim depreciation on the property as well as count any losses to help offset the rental income. These items should be discussed thoroughly with a CPA or a tax professional. But either way, it will require you to keep very precise records so you can account for profits and losses at the end of the year.
So, should you rent a house instead of selling it? In most cases, you are probably better off selling the house, especially if you can make a profit. Renting a house is an ongoing endeavor that will not end until the property is sold. Keeping paying tenants in the house will be imperative to maintaining the property with the least amount of expense. You will need enough money on hand to handle any expenses that arise in the rental property. Whether or not it is best for you – is your decision. Which way will be more profitable for you?