Should You Sell or Rent Out Your Home

You’re ready to move on to a new house but you have to decide what to do with your current home. Should you sell it or become a landlord? It depends on many factors including your financial situation, lifestyle preferences, and local housing market conditions. Here are some key points to consider when choosing between selling versus renting out your home:

Cash Flow Analysis

Crunching the numbers is crucial. Will renting generate positive monthly cash flow after accounting for mortgage payments, taxes, insurance, maintenance and other expenses? Estimate conservative rental rates since vacancies can occur. Calculate your return on equity by comparing potential rental income to your equity if sold. How does that return (after tax) compare to other investment opportunities you have available?

Selling provides a bigger lump sum, but rentals offer ongoing income. Run projections to see which provides better returns over time based on property values, financing, profits, and tax implications.

Lifestyle Desires

Do you want the hands-off approach of selling versus the continuous responsibilities of landlording? Being a landlord takes work, from finding tenants and collecting payments to overseeing repairs and maintenance. If you hire a property manager, profits are reduced.

Evaluate whether you’re up for the landlord role or would rather simplify and sell. If homeownership obligations seem unappealing now, renting out the property may not be the best fit.

Local Market Conditions

Study rental demand and average vacancy rates in your area. A hot rental market with limited affordable housing can make it easier to find tenants quickly. Places with abundant multifamily unit construction may have more competition for renters.

Also research sales activity for comparable homes nearby. If the for-sale market is trending up, you may want to capitalize by listing sooner than later. Weigh both the sales and rental markets.

Property Evaluation

Carefully assess your home's features and condition. Does it have the layout, amenities and style that tenants desire? Is everything updated and move-in ready? Any major repairs needed now or in the coming years will cut into returns.

Homes requiring substantial improvements may be smarter to sell “as-is” versus investing money into a rental. Conversely, updating your house before renting can allow you to charge higher rents.

Financial Needs

Your current financial situation should factor heavily. Do you need proceeds from a sale for a down payment on your next home or to pay other debts? Could you qualify for a profitable rental property mortgage if keeping your home?

For many sellers, liquidating the asset is the wiser move to free up capital. But if you can swing it, keeping the home as a rental can provide ongoing income while the renter pays down the mortgage.

In the end, whether to sell your house or turn it into an investment property depends on an array of variables. Carefully weigh all aspects and consult experts to be sure you have all the information needed to make the best decision. The more diligent you are upfront, the less likely you’ll have regrets down the road.