Your new property is the dream home you always wanted, and it’s finally yours.
Can you see yourself lying in bed in your new home with a big smile on your face, taking a deep breath as if you’re savoring the moment of fulfillment? There is still much to do and many things to move, but who cares? You are here, now, enjoying the moment. After you're set and ready to start a new chapter in a new home, a question arises.
What are you going to do with the old place? Your old home is still livable, therefore, are you going to sell it? Or, is it better if you renovate and rent it out? Maybe a compromise between the two with a rent to own agreement?
Let’s dive a little deeper into this scenario and see if you should sell or rent your property after moving?
The benefits of renting your home
When faced with the decision of renting or selling, you might ask yourself what the benefits of doing one or the other are? Each of these aspects brings different benefits but also various challenges. It is up to you to decide which one seems more convenient for you, and which option benefits you better. With that being said, here are some of the benefits of renting your home.
Renting to generate a second stream of income
The great thing about renting is the fact that it is very easy to understand. When the tenant pays you to rent, that is another income source besides your regular salary. This is great since it reduces the financial risk by diversifying your investments. In case you lose your job, you will still have some income from the rental coming your way.
Now you can decide to use that money; however, you see fit, or you can use your passive income to avoid paying interest on your home loan. However, it would probably be a good idea if you could find a way to take that income generated from renting and reinvest it to keep that cash flow positive.
Renting can help cover your own mortgage expenses
If you have an ongoing mortgage for your new home, you could use the rent money from your first property to cover your monthly mortgage payments. In a way, the tenant is paying for you to earn equity in your home, and that is a huge bonus. Of course, if the mortgage is paid, you can keep any monthly rent as income and do with it as you please.
It is not out of the ordinary to cover your mortgage payments with rent paid by tenants. Many people do that, and for many, it is going pretty well. This will surely help relieve some financial stress off your shoulders, and in the long-term, you will end up with two properties that are yours.
Things to consider if you want to rent
If you decide to rent, there are a couple of things you might want to consider first before getting into it. This strategy might sound good, but without careful consideration, you might end up suffering terrible losses, instead of making a profit out of it.
First, you should know if renting your house is profitable or not? Do you need to ask yourself if the property can produce positive cash flow? It’s not that hard, and you can easily figure it out on your own. Just deduct all the expenses associated with renting a property from the monthly income generated through renting. Are you producing a monthly profit, or are you on a loss? If you're at a loss, you might want to consider selling it.
This might be a silly thing to consider, but it is absolutely necessary? Are you ok with being a landlord? Can you handle tenants? To be honest, not everyone is fit to handle this kind of work. Some tenants are a dream to manage while others are a nightmare. The good thing about being a landlord, just like any other job or skill it can be learned, so if you are willing, you'll be just fine.
After a closing, you shake hands and move on with no further obligation. The same doesn’t apply if you want to rent and become a landlord. You will have to deal with taxes, fees, insurances, and other related expenses. You will have to keep up with maintenance and repairs if any are needed. It is time-consuming and sometimes stressful, therefore know what you are getting into first.
The benefits of selling your home
Maybe selling sounds a lot better and you would consider this option instead of renting. But what are the benefits of selling? What do you get out of it after the deal is closed and you are no longer the owner? Let’s find out some of the benefits of selling your home.
Walk away after the sale
Being a landlord will definitely occupy most of your time, and it is not an easy job to handle. If you decide to sell, you will still have to go through the stress of selling, and there is some work involved. Paperwork is never fun, but at the end of all, you get a check for your home after which you move on. You don't have to deal with the burdens of renting because you're now set.
If the market declines in the future, get out now
If you feel like the market is going to go down the drain in the near future, you can escape by selling your home as soon as possible. The first step is finding a real estate agent near you to help you market your property and sell it in no time. By selling in a market that’s predicted to depreciate in the future, you will get the most revenue out of it now rather than later. Having the money from your home would allow you to place an investment in a place that is looking more promising in the future.
Take advantage of current tax laws
As a homeowner, you can benefit from a significant tax deduction with the current real estate capital gains tax law. This law basically excludes your sale from capital tax gains on a home sale up to $250,000 if you are on your own or $500,000 if you're married. By selling now, you could use this law to your advantage and save a significant amount of money if you have a lot of equity.
Selling covers expenses for your next home
One of the reasons many homeowners choose to sell rather than rent is the fact that they get a significant cash injection that helps them cover expenses on their next home. If you have a substantial down payment for your next home, selling your first property puts you in a much better financial position. It will be a lot easier for you from a financial standpoint to cover the transaction costs and applying a couple of negotiation tips to reduce closing costs on your new home; this will surely give a good head start.
Final Thoughts on Should You Rent or Sell
Deciding whether to rent or to sell a home is a decision that ultimately comes down to you. You would have to weigh the benefits of choosing one or the other and see which one fits you better. Are you ready to become a landlord and have some extra cash coming your way every month? Or, would you rather get a big lump of money in one go and get rid of all worries?
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About the author: The above article on renting or selling your home was written by Andrei Geist. Andrei is a college student and full-time content writer at RealEstateAgent.com. Growing up on a farm in North-Central Florida, Andrei learned the value of integrity and diligence early on. As an International Relations major, Andrei is passionate about writing on a wide range of topics from geopolitics to international travel to economics.