If you’re hoping to relocate, you’ll face the dilemma of what to do with your current house.
Depending on your financial situation and the state of the housing market in your area, each option has advantages and disadvantages.
On the one hand, selling seems like common sense in today’s housing market—there’s plenty of incentive to sell right now, with low-interest rates and rising home prices. On the other hand, you might be curious about turning your home into a rental, allowing your property to pay for itself as it gains value and you continue to build equity.
The pros of renting in Richmond
Renting your home has several significant benefits. Here are a few:
You will continue to build equity in your property
You will enjoy some passive income from the monthly rent.
You can then use the equity to qualify for a better loan with lower interest rates, making it possible to invest in more rental properties in a shorter period.
Overall, investing in rental properties can be very financially rewarding. For example, insurance, mortgage interest, and maintenance expenditures can all be deducted from a rental property’s tax return, among other tax advantages.
The pros of selling in Richmond
Selling your house has upsides too.
The biggest one, obviously, is the amount you could get in profit from the sale. You may even get numerous bids at or over your asking price if you’re in a seller’s market. You may even receive bids significantly higher than your home’s asking price.
Additionally, renting poses risks that can be avoided by selling. For example, you can avoid the possibility of having a bad resident (or having a difficult time finding one at all) by opting to sell instead.
How to know whether selling or renting is right for you
Should you sell or rent? It depends on various factors; no one answer will suit everyone.
Below, we list a variety of scenarios that may influence your decision.
Signs that renting could be a good decision:
1. Local rental demand is high
If rental demand is high in your neighborhood or city, you may consider renting your home instead of selling it. Typically, rental demand is strong in urban areas, colleges, and areas with new developments or booming job markets.
2. You want to be a landlord
If the thought of renting out and managing properties has always interested you, that excitement could help you succeed.
3. Your property has renter-friendly amenities
Even if it is no longer suitable for your needs, someone else may find that your house is the ideal place to call home. If your property has amenities that set it apart from similar rentals and make it more desirable to residents, you should consider renting your home instead of selling it. This is the key to having a successful rental.
The top amenities searched for on Apartments.com are things like granite countertops and stainless steel appliances, outdoor spaces, walkability, an in-unit washer and dryer, and ample parking.
4. You can make a profit
If you can charge more in rent than you have to pay to cover your mortgage, insurance, and property taxes each month, you can make a profit and earn passive income on your rental.
While your income will accrue slowly over time (compared to the amount you could get immediately by selling), your equity will also increase. Additionally, your home may increase in value. Each factor contributes to your overall profits if you choose to sell later.
5. You expect your neighborhood’s property values to rise
While it’s impossible to be absolutely certain, you might be able to make an informed forecast of property values in your neighborhood. To capitalize on the potential growth in value of your home, renting it out may be a better option than selling it outright.
Signs that selling could be a good decision:
1. It’s a seller’s market
In a seller’s market, there aren’t many homes for sale, while at the same time, many people want to buy them. If you sell in a market like this, there will be a lot of demand for your property, which can help you get the highest price.
If the inventory of homes in your area has dropped or prices in your area have gone up quickly in a short amount of time, this is a great way to tell you’re in a seller’s market.
2. You couldn’t charge enough rent to make a profit
In a perfect world, the rent you charge would cover your mortgage payments, insurance, property taxes, and maintenance costs, plus a little extra to cover any vacancies. Otherwise, you won’t make a profit on your rental.
It’s important to realize that even if your property’s value is high, that may not necessarily correlate to being able to charge correspondingly high rent. How much rent you can charge for a home depends on how much a resident would be willing to pay and how much demand for rentals is in your area. You can get an idea of how much you’d be able to charge for your home by looking at similar rental properties near you.
3. You need cash for another purchase
If you need money to make a down payment on your next home or to make another large purchase, selling will allow you to access the equity tied up in your current home.
4. You can deduct capital gains
If you sell your home for more than you paid, you may be able to deduct up to $250,000 (or up to $500,000 if you are married) of the profit you made from the sale from your taxes.
However, you are only eligible for this exemption if you have lived in the home as your primary residence for at least two of the last five years.
Rent vs. Sell Calculators
There are many factors to weigh when deciding to rent or sell, but the crux of the decision is determining the best value. This requires you to crunch the numbers to determine how much you’ll earn by selling and how much you’d earn by renting the property. The numbers will help you determine which route is best for you.
A great tool for this purpose is an online calculator. We like the National Association of Residential Property Managers’ Rent vs. Sell calculator. And for those interested in renting and working with a property manager, you can also use Evernest’s pricing comparison tool to compare property management fees and receive a free 10-year cash flow projection.
The bottom line
Deciding whether you should rent or sell your home depends on various factors. We hope that this guide helped you understand these factors so you can use them to determine which would be the best decision for you.
If you still have questions about renting your home, send us a message! We’d love to answer your questions and help you determine if renting is right for you.
Source: This content was originally written and published for Evernest at Evernest.co.