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