SHOULD YOU SELL YOUR HOUSE OR RENT IT?
It can be a tough decision to decide whether to sell or rent your current home, so to help you out, we have listed some factors to consider when deciding whether to sell or rent your house.
Will this property generate cash flow?
When deciding whether to rent or sell your home, the first thing to look at is the math.
Ask: Can positive cash flow be generated by this property?
Which means that when this property is rented out and you subtract all related expenses (mortgage, insurance, taxes, utilities, vacancy, management, repairs, HOAs, etc.), will a monthly profit or loss be generated by the property? Consider selling if it is a loss.
Consider your return on investment while you are making a profit from selling. For instance, if you could make $100,000 in profit by selling your house and generating cash flow of just $1,000 a year, that’s a return on investment of 1 percent. Better to take the profit of $100,000 and invest it in something else that could create a greater return.
How about taxes?
Normally, if you sell your house and earn a profit, depending on the tax bracket, you have to pay income tax on capital gains, up to 20%. However, if you have lived at home for at least two of the last five years, the IRS allows homeowners (sorry, investors!) to exempt the selling of up to $250,000 (or $500,000 if married filing jointly) of a primary residence.
Let’s look at another situation where it could come in handy. Consider Kelvin and Katie, who purchased their home for $150,000 in 1996. Today, for $500,000, they can sell the property, gaining $300,000 after the sales costs.
Of course, there is always the possibility that by holding the property, it will appreciate in value to an amount higher than what the tax would have been, but when it comes to real estate valuation, there are no guarantees.
Will the future look luminous?
In deciding whether to rent or sell your home, another significant aspect is to consider some foresight for the future. What will the next 5, 10, 20 years be like for the location of your home? Are things making improvements? Is your neighborhood going to drop in value? To prevent issues later on, consider selling now if the future looks bleak.
It is not impossible to try to gauge where the market is heading. Take a look at your city’s growth. Is it moving away from you or towards you? Are corporations coming into your area? Would homes be fixed or left to rot? You can’t tell with 100 percent certainty, but you can make a more educated decision about whether to hold on or sell now by evaluating the latest trends in your market.
Also, that doesn’t mean you have to be the one dealing with the tenants only because you own rental property. There are professional property management services in almost every area, and they will reduce the stress of rental property ownership to a minimum if you can find a great company (for a fee, of course!).
Who is the Property Management Professional in your area?
The answer is: Us – Kelvin and Katie. Contact us now for more information about Property Management Services.
So, again, should you rent your house or sell it?
Deciding whether to rent or sell is a decision that only after considering all the choices can you make.
If you are trying to make the decision right now, take a look at the five considerations listed above and make the option that works best for you, your family, and your financial future.