Should You Sell or Rent Your Home?
Moving? Should you sell your home, or rent it? Here are five points to consider.
Amanda Thomas
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Should You Sell or Rent Your Home?
Recently a number of my friends have started playing around with the idea of moving, which then leads to a decision of whether to sell their homes, or rent them. This discussion seems to be happening a lot lately, most likely because the employment market is changing and people have more opportunities to change jobs.
I decided to ask one of my good friends, Ben Ellis of E&G Real Estate here in Phoenix, AZ, for a few of his best tips to help people decide if they should rent out their current home, or sell it, when they move. Ben is a real estate broker who started a property management company, so he can see both sides.
Before I jump into the tips, I do want to start out by saying that the decision to sell or rent out your home is a BIG one, which means that these tips are meant to get you thinking and to start conversations, not as financial or real estate advice. If you looking in to this decision for yourself, it’s important to seek professional advice, which leads in to the first tip.
Tip 1: Bring in the Professionals
Because this is such a big decision, you want to be as informed as you can before you commit to a path.
If you are ready to truly examine this decision for yourself, the very first step is to talk with local experts to make sure you are getting all the right information for your area. When I asked Ben which types of people to speak with, he recommended at the very minimum contacting: a local property manager (who can give you honest information about the rental market in your area), a local real estate expert (an agent who has recently completed transactions in your area is a good place to start, NOT your cousin’s best friend who does real estate “on the side”), a mortgage broker or banker (to see if your current mortgage can, or should, be adjusted), and possibly your financial advisor or accountant (to discuss your longer term goals).
If you don’t have any of these people in your Rolodex, start by asking for referrals from people you trust. You can search online reviews, but often times the best connections are made by referrals.
Tip 2: Examine Your Equity
If you bought when the market was low, you hopefully have some equity in your home. If you bought when the market was high, you may owe more for your home than it can currently sell for. Considering the amount of equity, or the amount you owe, on your home may be one of the biggest deciding factors for you. If you have equity and can sell your home, you can use that equity as a down payment on your next home. If you don’t have any equity, you may need to get approval for a short sale or be prepared to bring additional cash to the table when you sell.
A local real estate expert will be able to help you determine the real, current value of your home, and a mortgage broker or banker will be able to help you discover if there are options to refinance. Talk with local professionals to get a good idea of what will happen if you do decide to sell your home. Ben was quick to point out that the term local should focus as close to your neighborhood as possible. In larger cities especially, find a real estate agent who has done transactions in your zip code or ones close by to make sure they really understand the market around your home.
Tip 3: Examine the Rental Market
This is also a great time to talk with a local expert to learn about the current rental market in your home’s area. Of course, you’ll want to know what other homes are renting for, but you’ll also want to learn what you will need to do to your own home to make it marketable and rentable.
Something that Ben told me that I hadn’t considered was that the rental market is much more commoditized than the buy/sell market. Every little detail can mean money each month for the landlord. If renters are comparing multiple properties in the area, and one has granite countertops, new appliances, neutral paint, and updated flooring, they can easily justify paying more than a property that has an outdated kitchen, wild paint colors, and stained carpet.
Making a few upgrades will not only increase the potential rents for your home, but it can also increase the overall value of the home, plus save you on deferred maintenance costs moving forward. For example, if you leave a 20-year-old stove in the kitchen, there’s a better chance it’s going to break down than if you had a new stove in the home. By replacing the older appliances, you’ll hopefully save money and time on repairs down the road.
Tip 4: Decide If You Can Let Go
Most of my friends who are considering moving are going to be leaving their first home behind. Your first home is likely the biggest purchase you’ve ever made, which means you inevitably have some emotional ties to the home. Then, if you lived there when you got married or had babies, there’s even more of an emotional tie to the home.
Something to ask yourself is: How would you feel if someone trashed your home?
Renting out your home comes with some risks. You can do a lot of things to get great tenants, including hiring a property manager to help screen and place tenants, but there can still be surprises. If anyone in your family isn’t able to handle the idea of walking into a house with crayon covered walls, broken cabinet doors, or showers that didn’t get cleaned for the entire 12-month lease, becoming a landlord may not be the best decision.
Tip 5: Determine Short and Long Term Goals
Finally, I asked Ben what the one question he would ask someone who was considering turning their home into a rental or selling it. His immediate response was, “What are your goals?” This is a heavy question, and can be interpreted many ways, so he gave me some more specific examples.
Look 20 years down the road. Do you want to have a portfolio of real estate and be living off the rental income? Then turning your home into a rental may be a good way to start down that path. If you don’t want to have a portfolio of rental homes, look five years down the road. If you make five more years of payments on the home, will you be in a better position to sell? Look at the present time. Do you want to try your hand at owning a rental property?
These are the types of questions you want to talk through with a trusted real estate agent, financial advisor, and even your accountant. There are lots of reasons to turn your home into a rental property, but that doesn’t mean it’s always a good decision for you. If you can’t come up with a good reason for why you want to have a rental property either now or in the future, selling the home might be the best option for you.
Making the decision to rent out or to sell your home is a big decision, but I hope this episode was able to get you thinking. If you want more food for thought, you can check out Money Girl’s episodes How to Rent Your House and Buy Another One and How to Sell Your House Tax Free. Remember, before you take any first steps, consult with trusted professionals in your area.
Until next time, I’m the Domestic CEO, helping you love your home. Remember to follow me on Facebook and Twitter!
Home sweet home image courtesy of Shutterstock.