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Moving Up: Rent Out or Sell the Old Property

This is a guest article by Martin Orefice.  If you are interested in contributing to Debt RoundUp, please follow our guidelines.

Moving Up: Rent Out or Sell the Old Property real estate The magic 8-ball of economists has answered and the collective cry for the 2013 year in the housing market is “outlook good!”  If you’re a homeowner, you may be thinking that this is the time to upgrade and move into a place that better fits the demands you have for a home.  You may be wondering to do with your soon to be old home – would it be better to rent or sell the old homestead?

The most important thing before coming to a decision is to make sure that you have a perfect understanding of your financial situation.  It is extremely important to understand what your responsibilities would be in a situation where you may sell or rent your home.  Real estate agents, lawyers, and accountants can be very helpful in helping you figure out what will be expected of you in either case.

Why to Rent

The biggest appeal to people that rent their properties is that of a stream of revenue.  A successfully managed rental property can actually be profitable for you if the home is bought and paid for.  There are even tax breaks available for people for expenses involved in renting the home.

A rental option could be ideal if the housing prices in your area are not what you are hoping for.  By renting your home you can keep the property while waiting for the market prices to reach an ideal selling point.

Why You Shouldn’t Rent

Before you decide to rent a property, you need to make sure that it will be viable as a rental property.  Something that is going to cost you tons of money in constant repairs is a poor choice for a rental property.

As a landlord you will be responsible for the property and that really means that you’ll be responsible for whatever your tenants decide to do to it.  Bad renters may cause damage beyond the scope of normal maintenance and upkeep for a home.  Even a good tenant may end up having something accidental happen such as the water heater giving out.

None of this takes into account the income you won’t have when you are between tenants.  As renters come and go and you spend time preparing the property for the next tenant you will see no rental income and only a loss of money from the property.

Being a landlord also requires you to be around for the renters.  If you can’t have anybody that can watch your property for you then you’ll never be able to take an extended vacation.  Exploding pipes are notorious for having very bad timing.

Why you should sell

The best reason for selling is that you won’t have to maintain a home that you don’t live in.  After that, if you’ve lived in your home for at least two years there is a big break from the capital gains tax that is available, more if you’re a married couple.  This is up to a certain limit, so again, it is best to consult with a professional to see what the actual case will be.

Getting the money from your sale is a big boost to your finances and may help you in your next big purchase like moving into your next home.  The big gain in money might not be so big if you plan to rent the property out.

Managing a property could also be very unpredictable.  Appliances may need repairing or replacing, tenants could be destructive, and pets can cause deep damage that may not be immediately visible.

Why You Shouldn’t Sell

Is the market where you want it to be?  If it’s a buyer’s market out there then the time is definitely wrong for selling.
Let’s say that you don’t have your home paid for.  If you are able to find solid tenants and think that you can manage the property just fine, the income you make from the rental payments could go towards the mortgage of the home.  Before long, you may reap the benefits of having a home that was paid for with someone else’s money.

Do you like the neighborhood and want to return to it someday?  Keeping a rental property is a great way to always have a place to return to.  This is a good idea especially if the home prices are on the rise in the neighborhood.  You may have a harder time getting back into a neighborhood that you enjoyed because the prices are keeping you at bay, but maintaining a home there will get you around this pesky little barrier.

Make an Informed Decision

Seek professional advice for deciding which of these options the best choice is for you.  Real estate attorneys and accountants are a great resource for helping you get all your ducks in a row before you decide to sell or buy.

There are also different options available that work as a sort of middle ground between renting and selling your property.  The rent to own option has become increasingly appealing for both renters and sellers as an approachable choice.  There is also the option of letting a rental or real estate company manage your rental property.  For a fee, they will manage the same operations that you would be responsible for as a landlord, giving you greater freedom while still retaining ownership of the property.

If you get the right advice, then you’ll know the right choice to make and hopefully find the right balance between good real estate investment and living in the home of your dreams.

Martin Orefice is a husband, father, and entrepreneur with an interest in personal finance and real estate.

Image courtesy of Danilo Rizzuti / FreeDigitalPhotos.net

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Moving Up: Rent Out or Sell the Old Property real estate

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28 comments

  1. Good synopsis. Your cons are why I toil with the idea of becoming a landlord and making rental income. It seems like there is a lot of risk in terms of what the tenants could / could not do.
    My Money Design recently posted..Niche Website Project Part 2 – The UnveilingMy Profile

    • I am on the fence with being a landlord. I think it would be cool, but I don’t think the tenants would be great in our area. It could end up costing more than we make.

      • When it comes to real estate you should “live where you want but invest where the numbers make sense”. You should also make sure you’re running your numbers including professional property management.

        In most US markets, having a full time professional property manager will cost you between 5% and 10% of gross rents plus a leasing fee when a new lease is signed.

        An experience property manager is worth their weight in gold. Let them act as the “landlord” so you can act and continue to be the “investor”. Unless of course you want to become a handyman…
        Brent recently posted..How I’ve Lost 14 Pounds Through Habit & Gamification and How This Relates To Personal FinanceMy Profile

  2. The funny thing about being an owner is that whether the housing market is bad or good, you’ll end up breaking even either way. Think about that. If the market is good, you’ll get more for your house and pay more for one you buy. If the market is bad, you’ll get less for your house and get an upgrade for less. I know it’s a gross oversimplification but I really think it’s something to think about.
    Jose recently posted..Estate Planning – Our Return From MiamiMy Profile

    • Good breakdown Jose. You are right about that.

    • Actually, to leave my current home, I would have to write a check for close to 35k and I would lose the 54k I put down 8 years.

      I know I’ll never brake even…but the thought of living here another 5 to 10 years at my age (I’m looking for quiet…not city life) to not right a check for 35k makes steam come out of my ears. I can handle part of the loss just not all…and that’s one of the reasons renting is so attractive.

      After being “stuck” here for as long as I have….I have no intention of buying a home in the near future. I went against my gut and purchased this place because my family said it was the thing to do. I wanted to rent for a year and decide….

      Big lesson learned….listen to your gut.

  3. We have a tenant in our basement and it has been going well. The extra income is well worth any headaches, like making sure there is no ice on the path to the back of the house or addressing issues immediately. I would definitely consider renting my house, or at least some day owning a stand-alone rental property.
    DC @ Young Adult Money recently posted..The Death of the 9-5 Work WeekMy Profile

    • I am glad it is going well for you DC. It is also good that it is your home that you currently occupy. You want to take care of it, but it could be a little different if you had to travel to fix it up.

  4. My dad tried it with a house and had nothing but headaches with tenants. Late rent and messes left and late night phone calls because a toilet was backed up. He was very happy to be rid of the property and after seeing what he went through it keeps me from investing in a rental property.

    I am not handy at all and I am continually comfounded by maintenance problems at my own home so being a landlord is not for me.
    Jane Savers @ The Money Puzzle recently posted..Could My Finances Survive A Big CrashMy Profile

  5. When we moved into our current home, we decided to rent out the first house that we lived in. It makes a great little rental. It is a nice house, in a decent neighborhood, and we are able to price it right. Our renters are now paying off our mortgage, which is wonderful. We love it!
    Greg@ClubThrifty recently posted..Majestic Colonial Punta Cana: A ReviewMy Profile

  6. Great breakdown! We’ve thought about becoming landlords in the past, but for a variety of reasons it’s just not for us right now. Part of it would depend on when we might move out of our current house and how our business is going. I would love the new income stream, but I know enough to know that it would just be too much for us to take on.
    John S @ Frugal Rules recently posted..5 Investing Mistakes That Are Easy to MakeMy Profile

  7. Great post. I have never liked the idea of renting, it seems like such a waste of money to me.
    Glen @ Monster Piggy Bank recently posted..Why do Banks Like the Phrases “Please Hold” and “Transaction Pending”My Profile

  8. We are trying to decide if we want to rent out our current house when we buy the next one or not. It’s such a hard decision!
    Michelle recently posted..#Tag: Getting to Know the “Person” Behind the Personal Finance BlogMy Profile

  9. I decided to keep the property and rent it, it has a perfect central location and tenants are very happy there, the market in my town was very bad with landlords who don’t maintain properties well, etc. I had lived in a few bad places so knew from a tenant perspective what they would expect. Four years in and it has only been empty for a week.
    Pauline recently posted..About money, time, and doing the right thingMy Profile

  10. I want to rent my house when I move (no time soon), but I WILL use a management company. Way too many horror stories I’ve heard could be resolved with using a company. Sure, it may take 15% of my profits, but there won’t be much headache, and the rest of the income and equity are all mine!
    Jacob @ iHeartBudgets recently posted..Challenging Budget Exercise for a High School ClassMy Profile

    • Good strategy Jake. There is a management company that rents out the house next to us and they have constantly had problems. They always let in poor tenants. This is what frightens me about being a landlord.

  11. When my husband and I first met we each owned our own townhouses. 8 months after meeting we moved in together and purchased a new house to be built by a builder. At that time we discussed whether or not we should each rent out our townhouses or sell them. We decided to sell them, which turned out to be a big mistake because 8 months later prices in our city went sky high and we lost out on an increase of $100K each. Oh well.
    Tackling Our Debt recently posted..Kitchen Aid Event Coming March 20th – April 10thMy Profile

  12. Justin@TheFrugalPath

    This is something that I’ve been toying with. Once our debt is paid off I really want to pay down our current home and rent it out when we move. It’s something that we’re going to have to give some serious thought on when the time comes because it’s not always as simple as many people try to make it sound.
    Justin@TheFrugalPath recently posted..Online Funerals: Stream Your GoodbyesMy Profile

  13. Good synopsis of the varying positions. In my opinion, I don’t think anyone should become a landlord unless they have a passion for wanting to do it. I think many people approach it this way, “Ooh…maybe I could kinda sorta be a landlord. That would be cool.” We spent the better part of three years talking it through and educating ourselves about the business. And it is a business. If you don’t treat it that way, you will end up hating it and fail.

    It also helps to have some capital to back up your business. Broke people shouldn’t be landlords. People need to get their own financial house in order first before they venture into this. If your not careful, it can eat up what savings you have accumulated.

    Not trying to scare anyone off about becoming a landlord. We’ve had a great experience thus far. It’s just the reality of what the business is like.
    Brian @ Luke1428 recently posted..2 HUGE Reasons We Need to Save to Build WealthMy Profile

  14. Great breakdown of the pros and cons of renting or selling. We don’t currently have any rental property. I would consider it, but I’m not sure which way I’d go. If you have the right property and the right tenant – easy peasy. But it’s those stories of the wrong tenants … that make me nervous.
    Shannon @ The Heavy Purse recently posted..Children and Money: Don’t Turn It into a Taboo Topic, Part IIMy Profile

  15. I’m in a condo that I purchased 8 years ago. I’m sick of living here but my husband and I are sticking it out to pay off our debt…but the loss is so great since everyone has been short saling out or foreclosing.

    I’m really looking at renting it out and rending someplace else in the burbs…but I really want to set us up for the emergencies and I’m looking for more information on this subject…

    I rented the condo out once a few years ago for a year and my husband and I moved back in (long story) but it was the best choice when the economy was crashing.

    From personal experience from living here for 8 years…the expenses are low…the main issue would be the HVAC system….and I’ve seen other units (we’re at a high rental rate and buyers are unable to get FHA loans in the community). only stay on the rental market for 1-2 months. One across the hall has been longer because I think they over priced themselves….I think. But I’m finding the one bedrooms rent quickly so long as your willing to take on young tenets. Sigh.

    More info on this would be great!.

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