Buying a home is a big purchase, and often one that you consider a permanent move. However, there are times when you need to move on. When this happens, deciding what to do with your house is another major decision. Moving out of a property that you’ve bought often comes with the question—should you sell your house or rent it out?
Unfortunately, there is no easy answer to this question.
What works for one person or one situation may not be the right call for another.
A lot depends on where you’re living, where you’re moving to, and what your long-term plans are. That doesn’t mean that you can’t make a well-informed decision, however. What you can do is weigh up the pros and cons for your specific situation and make a call based on the answers to the following questions:
Are You Moving Out Permanently?
First and foremost, you need to consider why you are moving out of your home, what your plans are for the immediate and distant future. If you are not planning to come back to the city or area that you have bought in, then it probably makes the most sense to sell your house rather than keep you tied to the area. Having an investment property rental is great. But it makes more sense to do that in the area, or close to the area, where you are living.
On the other hand, if the move is only temporary and you’re hoping to get back to the same city, suburb, or neighborhood in a few years, holding on to your property is most likely the better option. There are always costs involved in selling and buying property. So, you can save yourself time and money by keeping the property and renting it out until you return.
What Is The Market Currently Doing?
Deciding whether to rent out or sell your house isn’t just about your own circumstances. There are a number of external factors that should influence your decision.
The most important one is what’s happening in the property market in your area. If it’s a really good time to sell and you can make a good profit on your sale, you should really consider doing it. Once you’ve weighed up the costs involved.
Next, look at the rental market and see what kind of demand there is. If plenty of people are looking to rent in the area and you can get a good rate for your home, it could well be worth your while Even if you are moving out of the area permanently. You need to carefully weigh up how much you’ll get in as rental income versus the costs of maintaining the property, as well as the costs of your new home once you’ve moved.
How Will You Manage The Rental?
Another consideration of renting out your property is the management of that process. Someone needs to find tenants and screen them, set up lease agreements, deal with maintenance issues as they crop up, collect the rent, do property inspections when tenants leave, and a number of other associated activities.
As a landlord, you are responsible for all maintenance and problems that arise on the grounds that you own, meaning if the water geyser bursts in the middle of the night, you need to fix it immediately.
Managing the property rental and the house itself yourself means that you need to be hands-on with the tenants and maintenance. This can be very difficult if you live in a different city, state, or country. You will also be responsible for screening your tenants and ensuring that the lease agreements have you covered legally.
The option is to hire a rental agent. They do this for a living and should have all the necessary legal documents and know-how. They will also have contacts and methods for finding and screening tenants. The flip side to this is that you need to pay them a commission, which comes out of your monthly rental income.
What’s The Neighborhood’s Future Look Like?
The future of the area you’re currently living in can play a part in your decision to rent out or sell your house.
Do some research into future development plans for the area and see if it’s likely that the property prices will improve or get worse. Things like new amenities—malls, lifestyle centers, better schools—can make the value of property in the area go up. On the other hand, industrial developments can cause the area to drop in value.
Depending on the development trends in your neighborhood and the surrounding suburbs, it could be good to sell immediately or to hang on until those developments are complete. This isn’t an exact science because a lot can derail development plans. However, it is always worth looking into.
Are There Any Tax Implications?
When looking at the math, you have to consider the taxes involved when you sell your house, and in earning rental income.
A major bonus to selling your home is that there is an exclusion on capital gains tax when selling your primary residence. If you have lived on the property for two out of the last five years, you can exclude the sale of up to $250 000. However, if you move out and rent the property out, you may no longer be eligible for this exclusion.
This may make you immediately think that selling is the better option. But that isn’t always the case.
The income you make on property rental could outweigh the exclusion over time. It could also cover your costs of moving and other relocation-related expenses. Additionally, the value of your property could go up significantly in the years you decide to hang onto it, making the sale of the property far better down the line. It’s highly advisable to talk to a tax consultant about your options here.
Ultimately, whether you sell your house or go the property rental route, there are pros and cons to both. The key is to do your research and ensure that you make the most economically viable decision for your situation.