Selling Your House or Renting It Out - Pros and Cons
Whether moving for a job or just relocating for personal reasons, you still must decide what to do with your current home. Should you rent it out? Or sell it? There are many circumstances to consider before making that decision. How long do you have before you move? What is the housing market doing in your area? And do you have someone you can trust to manage your property?
Of course, the biggest motivator in your decision is which option will be most financially profitable. If you have a lot of equity in your house and can sell it, you’ll walk away with some cash to put toward your new home. If the house is paid off, you’ll walk away with A LOT of cash. However, if your equity is built up and you have low mortgage payments (or no mortgage payment), you could bring in a substantial monthly income by renting the house for more than your monthly payments. You do have to consider the costs involved with renting the house out. If you’re relocating to another town, you will likely have to hire a property manager to collect rent and take care of issues that come up. You might also have to pay to advertise the home.
There are going to be risks involved either way. If you put the house up for sale, you run the risk of not selling it quickly and possibly ending up with two mortgage payments or a house payment and rent payment on a new place. But renting out your house might be a bigger risk. There’s a chance you will rent it to people who you think will be good tenants, but wind up paying the rent late or not at all. There is also the risk that renters will not take care of the house and lower its value.
Another issue to consider is that housing markets can greatly fluctuate from year to year. You must question whether your neighborhood is in the kind of shape to support a quick sale. If other homes haven’t been selling, for example, you might not get as much for your house as you might if you could wait a year or two and rent it out in the meantime. On the other hand, if the housing market is hot in your neighborhood, it might just be the best time to take advantage of it and sell to get the best price possible.
Finally, you have to think about whether you can afford a new mortgage while you still own the first house. Per Kiplinger, lenders count about 75 percent of the income you receive from renters when figuring out if they’ll give you a new loan, but that’s only if you have a signed lease and your salary is sufficient to cover the rest of the mortgage requirement. Selling your house will make it much easier for you to qualify for a new loan.
The bottom line is that, after doing your research, you can decide whether selling or renting is the best and most financially sound choice for you.