Should I Lease My House or List it For Sale?
When it comes to cashing out or cashing in on your property, make sure you weigh the pros and cons to make the best decision for you!
1. Tax Considerations:
Capital Gains: If the house has NOT been your primary residence for 2 of the last 5 years, you may be subject to capital gains tax when you sell.
Property Taxes: If you keep the home, you will have to pay property taxes on it. If your local tax rate is high that may be a deterrent to retaining property ownership.
Landlord Deductions: There can be landlord deductions/tax perks but you will also be taxed on the depreciation you report.
2. Cost of Renting:
The cash reserves necessary to maintain more than one home can be high. Vacancies, non-paying tenants, damages, maintenance such as new paint, carpet and appliance/plumbing repairs all come into play. Property management companies and/or paying the lease listing fees for the MLS listing are additional costs involved.
3. Cost of Selling:
The cost of selling is much simpler, but still something to consider. In the state of Texas the seller pays the listing broker a full commission, and this broker then pays the buyer broker commission from those funds. In addition, you will pay other closing costs to title/escrow, potential HOA transfer fees, etc.
4. The Cash Conversation
Sometimes you simply need the cash out of your current house/property in a lump sum in order to build or buy your next home. If this is the case, selling your home may be the best financial decision for you, even if it takes longer to reach closing.
5. Do You Want to be a Landlord?
Let’s get really honest – do you actually have interest in being a landlord? A landlord is the hiring/firing aspect of rentals. You will be in charge of finding tenants and evicting tenants, and taking care of any personnel issues or damages in the meantime (aka maintenance, repairs, citations for any activities contradictory to the lease, etc). Make sure this is something that actually appeals to you!
6. Temporary or Permanent
Ask yourself if your move is temporary or permanent. If the move is temporary, do you love your current home and would you want the option to move back into it? If so, then renting during the interim may be a benefit to your situation.
7. Do You Want Rental Income?
If you want to buy a new home and would like to rent out your current property, remember that some lenders will take into consideration your rental income (provided you have a signed lease agreement) when it comes to your qualification. Many times they can utilize up to 75% of that rental income as a verified income source. The drawback is that you may be carrying two mortgages which does involve more financial risk.
8. Rental Market
Renting out your home is always much less stressful when finding a new tenant is easy. Pay attention to the rental market in your area, what similar homes are renting for, and how quickly they are closing on their leases. You want to avoid long periods of vacancy.
9. Desirable Rental Property Investment?
Will your home make a good rental property income? Do you need to make any minor repairs or upgrades, or freshen paint or replace carpet in order to create desirability for a prospective tenant? How is the desirability of the location itself? Consider school district, commuting or easy-access, amenities nearby, local crime rates, etc. Also pay close attention to HOA restrictions. Some HOAs do not allow rentals, others only allow them for long-term tenants and have a minimum lease-length that is allowed.
10. Whose Responsibility?
Think of all the things you do on a daily/weekly/monthly basis and ask yourself who is responsible? Yard care & maintenance, repairs, air filter changes, utilities, lightbulb changes, pool care, HOA dues. How comfortable are you with pets in the home if they are not yours? Making lists of where the responsibility lies can help you decide if you truly want to retain ownership.
If you would like more information, and a current market worth estimate of your home for both selling market and leasing market, please send me a message at the contact form below!
