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Homebuying 101: Should You Rent or Sell Your Existing House?


sell-or-rent-800.jpgIn most cases, when buying and moving into a new home, homeowners sell their existing home. This allows them to collect the equity and funds from the sale, apply those to the new purchase, and make a clean break from anything that might go wrong at the old house. However, there is another option that can work well in certain situations: retaining an existing home and renting it out.

If you think renting your existing home might be a good option when you move, answering these questions will help you decide whether selling or renting is the best choice for you.

1. Is there a chance you may move back?

If you're moving due to military service, a work relocation, or other circumstances that may change again later, think about whether your former home would still serve your needs if you return to the area. If returning is an option, you might save significant money by renting your home to somebody else for the years you're gone, then moving in yourself upon your return. Becoming a landlord would allow you to avoid paying real estate agent fees and closing costs, which are required in a sale.

If you feel your move is permanent and there's no chance you'd move back to your former home, there's probably little appeal in renting.

2. Would renting provide monthly cash flow?

One of the biggest questions when deciding to rent is whether you'll be able to make some money after covering your costs. If not, renting is unlikely to make sense. When calculating, add up all foreseeable expenses, plus add in extra dollars for the unforeseen expenses that owning a home and being a landlord inevitably bring.

  • Monthly mortgage payment

  • Property taxes

  • Landlord insurance

  • Utilities

  • Homeowner association fees

  • Repairs (expect to spend 1% of the property value each year, so as an example, expect $2,000 per year for a $200,000 home)

  • Legal fees

  • Months with no income, when the rental unit is vacant or tenants don't pay

3. Do you anticipate the property experiencing a large change in value?

Though it's said that location is everything in real estate, timing is important, too, and timing may affect your decision to sell or rent. For example, if your existing home is in a popular area where home values are increasing quickly and you think that will continue, renting for a few years might be smart, since it would enable you to take advantage of a higher sale price later. On the other hand, if home sales seem to have slowed in the last few years and you think your area might be decreasing in popularity, selling now might be best because it might provide your best chance at the best price. Certainly this requires a bit of guess work, but it's worth putting in some time and research to try to formulate an educated guess.

4. Are you willing and able to do the work of a landlord?

Renting a property provides opportunities to build wealth, but you need to realize it's not easy money. You must be willing and able to put in the time and work necessary. Honestly consider whether you're willing and able to spend significant time dealing with jobs like these:

  • Advertising the vacant property

  • Showing the property to prospective tenants

  • Screening tenants

  • Creating leases

  • Tracking down tenants and collecting rent

  • Checking the condition of the property regularly

  • Evicting tenants who don't pay

  • Taking calls for repairs and requests

  • Sourcing vendors and repair partners

  • Paying for upkeep, repairs, and replacements to items like the roof, furnace, air conditioner, appliances, sinks, toilets, and flooring

  • Making necessary repairs and upgrades every time a tenant moves out

Related reading: Tips for Finding a Property Management Company

When it's time for you to move, the decision to sell or rent your existing home is important. Be sure to consider the financial implications, time commitment, and future opportunities of both options. When you're ready to sell, check out our ebook for smart tips on preparing your home. 

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