When moving out of home many sellers are left wondering, should I sell or rent my house? There are pros and cons to both options, which this article will explore. Each situation is unique and has its own set of factors to consider when making a decision of whether to sell or rent a house.
Renting out your house is a great way to turn your property into a cash-flowing asset, we would know. Becoming a landlord is a large responsibility and should only be taken on if you are willing to put in the time and effort. The benefits of renting out your house include a stable monthly income, tax breaks, and someone else taking care of repairs and maintenance. On the downside, you are not able to control who rents your house and how they treat it, you may have to deal with late rent payments and evictions, and you will likely have to hand over a significant chunk of your monthly income to your property manager. Before we get into that let us talk about the upfront costs of turning your property into a rental property.
Up Front Cost of Turning Your Property Into a Rental
After you move out and before you turn your house into a rental you will most likely need to do some repairs. These repairs can range from a new coat of paint to fixing a broken window. The larger the home, the more expensive these repairs are likely to be. The older the home the more the repairs will be as well.
Before you can start renting your house out you will need to clean it top to bottom. This includes scrubbing every surface, laundering all of the curtains and linens, and deep-cleaning the carpets and furniture. Depending on the state your home is in when you move out, this could be a costly endeavor.
Now that your house is ready to be rented it is time to find a tenant, remember just because you have a great rental does not mean people will just show up and want to rent it. To find your tenant you will need to start marketing your property for rent. This can be done in a variety of ways, but typically costs money.
If you do not want to deal with any of the hassles that come with being a landlord, then you can always hire a realtor or property manager. While this will get you a tenant relatively quickly, it also comes with a price tag. Most property managers charge around 10% of the monthly rent. When trying to find a tenant you will also need to budget for the first month's rent to the Realtor that brings the tenant.
A vacancy is a cost often overlooked. There is a cost to having a vacant house, even if it is only for a few weeks. This cost can be in the form of lost rent, missed opportunities to generate income from other sources, and extra utilities you are paying for while the house is vacant. This also includes all your PITI.
Every month you will get a rent check (hopefully), it is important to know your numbers though. Failure to do so could turn your cash-flowing asset into a money pit. When calculating your monthly expenses you should include the mortgage, insurance, property taxes, and HOA fees if applicable. You should also budget for things like repairs, replacements, and vacancies.
Other Common Expenses
Even though we hope this does not happen it is something we have to consider. An eviction can cost a landlord anywhere from $2,000 to $10,000 depending on the state and the reason for the eviction.
Houses are expensive to upkeep and things always break. When they do, it is the landlord's responsibility to fix it. This can be a costly endeavor, especially if the repair is something that needs to be done by a professional. tenants are also notorious for not keeping the house up to date which can lead to more repairs in the future.
Any issues the tenant does not address will be on you to take care of. These issues can range from a broken window, a rat infestation, or overgrown weeds. Most of the time these violations will need to be addressed before you can get a new tenant and the city will put a lien or fine on the property to address it.
For all of the issues above, most homeowners elect to just sell their house fast and get rid of it. This eliminates all of the hassles and costs associated with being a landlord.
When deciding whether to sell or rent a house, there are a few things you will need to weigh. Selling your house will get you out from under all of the monthly expenses, but it can take time to find a buyer and there is always the chance it will not sell at all. Renting your house will get you a monthly income, but it also comes with costs. These costs can include cleaning, marketing, repairs, and replacements. In the end, it is up to you to decide what is best for your individual situation.
Pros of Selling a House
Many sellers elect to sell their home quickly and invest the money elsewhere or just put it into their new home.
For most who have no experience as a landlord this may be your best option, take the money and invest it.
Cons of Selling a House
Once you sell your house you no longer have all the benefits that come with the investment cash flow, appreciation, and tax breaks. Selling a house can also hit you with capital gains tax, so make sure to talk to your accountant so you can keep as much of your equity as possible. Selling a house is expensive (you can learn more about that in our other article Cost To Sell A House) so make sure to take that into consideration when budgeting to sell a house. Closing costs and commissions can get very high unless you sell to a cash home buyer like Illinois Real Estate Buyers who will pay all your closing costs.
Sell or Rent a House, Wrap Up
So, what’s the verdict? Should you sell or rent out a house once you move out? The answer really depends on your needs and wants. Selling can provide a one-time lump sum of cash that can help with a down payment on a new home, cover moving costs, or simply pad your savings account. However, renting can be more predictable month-to-month and may offer some tax benefits. Ultimately, the decision comes down to what is most important to you and we are here to help make that determination. If you are considering selling your house fast instead of renting it out contact us for a free consultation – we would love to hear from you and help you make this important decision!