Should you sell your current home or rent it out?

Hank Bailey
Hank Bailey
Published on July 3, 2019

What do you do? There is no one answer and many, many things to contemplate over when deciding about whether to sell or rent out a house that no longer suits you.

First, I urge you to speak with your CPA or financial planner before making definite plans regarding leasing out a current primary residence.

They will be able to help you determine if keeping the home to lease out to a tenant is a sound financial move – whether or not it will produce positive cash flow without negatively impacting your tax bill. If it won’t, and you’ll be looking at a loss every month, consider selling the home.

But here are a few other things you may want to consider while waiting for your accountant to get back to you.

Condition of the home

Selling a home as-is isn’t quite as easy as you may think. If there are significant problems, a buyer’s lender may require them to be remedied before proceeding with the loan. Not to mention the fact that you will entertain lower offers as opposed to a property that is “like new” and move in ready.

Even smaller problems may cause a significant reduction in the selling price and a lengthier sale process. Tenants on the other hand are far more likely to overlook a home’s flaws than a potential buyer.

If you don’t have the funds to make repairs, renting the house out may be the best option, provided your financial advisors agree that all other considerations point to renting as well.

Can you tolerate being a landlord?

Now, that is the question isn’t it? If your home is in pristine condition and you have even a small emotional attachment to it, you may not want to rent it out. Tenants are notorious for not caring for homes as much as the homeowner does, allowing problems to fester without notifying the owner, causing additional damage. It’s just reality.

Let’s face it, the mere act of living in a home can cause damage, from scuffed baseboards to burnt countertops and dead plants. If the thought of any of this damage breaks your heart, perhaps you should reconsider becoming a landlord.

Then, there is the routine home maintenance that you’ll be on the hook to perform, despite not living in the house. Guess who pays for the plumbing bill when the tenant’s child tries to flush his toys down the toilet?

If the roof leaks, the refrigerator dies or the HVAC unit needs repair, the burden is on you to set things right. It’s your house after all. If you lack the energy, desire or the funds to make repairs or replacements, being a land lord is not for you.

Your tolerance for risk

Becoming a landlord is a risky endeavor. What will you do if the rent is late or if it isn’t paid at all? Will you have the money to make the house payment?

Will you have the time and money to spend on protracted and stressful eviction proceedings? If not, you either shouldn’t become a landlord, or find the extra money to pay a professional property manager.

State and federal income taxes

I’m not a CPA, so, again, I urge you to contact your tax professional. Taxes are complicated and become even more so when you own an investment property. I do know that there are many tax deductions for investment property owners, from being able to write off the interest associated with the mortgage to depreciation.

“The cost of repairs to rental property (provided the repairs are ordinary, necessary, and reasonable in amount) are fully deductible in the year in which they are incurred,” claims Stephen Fishman, J.D. at nolo.com.

Yet, within certain guidelines, you don’t want to jeopardize possibly upwards of six figures in tax free capital gains by turning a highly appreciated home into an investment property either.

Your tax professional can let you know what, if anything, has changed in the tax laws.

Selling the home

If you sell the home, you’ll be taking advantage of one of the best seller’s market in history. You’ll no doubt be pleasantly surprised when you learn how much the home worth right now.  The “pain” to sell a home and go through that process, as compared to leasing, can be relatively quick and easy, and unlike leasing, there’s a certain finality to it!

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