You’ve just received your dream job offer and you start next month. It’s wonderful news but, the job is in another state. You’re now faced with a decision about what to do with your home. Should you put your home on the market or rent it out? With real estate booming and rents continuing to escalate, how do you know which decision is best for your situation? This month we’ll explore when it makes sense to rent your home versus selling it along with the pros and cons of doing so.
Profitability and timing are the two main factors to consider when deciding if renting your home is a better option than selling. If market conditions, costs associated with selling and the money you have put into your home won’t allow you to break even or profit from the sale of your home then renting is a great option. Timing is the second factor to consider. If your time to sell the home is immediate and market conditions aren’t favoring a quick sale then renting your home can be a more financially attractive route to take.
Pros of renting your home include:
- Extra income – Depending on the rental market and demand you may be able to command rental income that not only covers your mortgage cost, taxes, insurance, but brings in a little extra profit each month.
- Tax breaks – Most of your out of pocket expenses, like maintenance, repairs and cleaning, associated with owning and managing the property can be deducted.
- Sell later at a better price – renting your home can allow the time necessary for market conditions to become more favorable for a sale and/or for your home value to increase to the point where you can get a sale price that is acceptable to you.
Cons of renting your home include:
- Fluctuating rents and demand – Rents and demand can fluctuate. These factors may cause the rental to produce less income than anticipated or cause the home to sit vacant with no income.
- Property may get damaged – Accidents can and do happen and there is always a chance that you may get renters who aren’t as careful with your home as you would be. In either case, your property may get damaged and this can be a source of additional expense and repair.
- Tax Consequences- You may be required to pay a higher tax rate on the home’s rental income. Additionally, you could pay capital gains tax on the sale of the home depending on how long you lived in it and how long you rented it.
If you are faced with having to decide if renting your home or selling is the best option, contacting your CPA and a real estate agent are the best first steps in the decision-making process. A CPA can provide you with all of the tax implications associated with renting your home versus selling it. As a real estate agent, I can help you understand current real estate market conditions, run a competitive market analysis to determine the likely range your home will sell for and offer insight into the amount of time it will take to sell given current market factors. Then, if you decide that selling is the best option, I can then further assist you with the sale of the home.
I have advised many clients who have been faced with making this important financial decision. If you have questions about selling or renting your home, please give me a call.