If you’re thinking about selling your home or holding onto it and becoming a landlord, you’re not alone. Whether to keep a home as a rental investment or to sell it is a common question. Oftentimes, the decision to sell or rent the home comes down to finances. If you’re planning on buying a new home your lender may require that you sell your home. Here’s what homeowners who are thinking about selling or renting need to know and what they need to consider.
The best place to start as you make the decision is with your future plans. Specifically, will you be buying another home? If so, then you’ll need to get started by contacting an experienced local lender who can look at your financial situation. The lender will be able to help you determine if you’ll need the proceeds from the sale of your current home to buy your next home. If so, you’ll have your answer since it just won’t be feasible to hold onto your current home. If holding onto your current home as a rental property is an option then the next step will be to look closely at the numbers to see if they work.
One of the most important numbers to know is current rental rates for homes like yours in the neighborhood so you can estimate your income from the home. My advice is to estimate on the low side, many landlords have failed because they’ve been overly optimistic. Once you have an estimate of the potential rental income then you’ll want to deduct your expenses. In addition to your mortgage payment, interest, taxes, and insurance you should also factor in vacancy of two months rent, maintenance costs, and saving for capital expenditures like a new roof and furnace when the time comes. If you’ll be hiring a property management company then you should also count on a monthly fee of about 10% of the monthly rent. If the anticipated income is greater than the costs then you’ll be in a good position to seriously consider keeping the property and renting it out.
Renting out your home and becoming a landlord has advantages and disadvantages. Real estate can be a great investment. If you’re in an area with a history of strong appreciation in home values and expect that appreciation to continue, you should be able to sell the property for far more than you paid for it. Once the mortgage is paid off the rent can provide a comfortable supplement to retirement income. On the downside you’ll have to deal with vacancy and finding new tenants, tenants who don’t pay their rent or disappear, late-night calls for emergency furnace repairs, and possibly complaints from neighbors. The better prepared you are for these issues, the easier they will be to deal with. They’re just part of the business of being a landlord and many people navigate them successfully.
If you have questions or would like to talk about selling your home or renting out, please send me an email so we can arrange a time to talk.