Should I Sell My House or Rent it Out?

Moving truck at the ready and boxes packed? As you prepare to move into your new house, a crucial decision looms: should you sell your current home or turn it into a rental property? Both paths offer distinct advantages. Selling provides a much-needed cash injection upfront, while renting allows you to leverage your property as a long-term investment. Ultimately, the best choice depends on your individual circumstances and future goals.

Here are questions to ask yourself to determine whether selling or renting is right for you, as well as the pros and cons of renting out your house.

Should I Sell My House or Rent It Out?

The goal is to land on a decision that will provide more benefits than headaches. However, it's important to keep in mind that both selling your house and renting it out have their own pros and cons. We outlined five questions to ask yourself when planning the next steps for your property.

1. What Is the Local Demand for Rentals?

Before determining whether or not you should sell or rent your house, it's important to research what the local demand for rentals are in your area. If you decide to rent out your house in an area that is primarily owner-occupied properties, then it may limit your pool of qualified tenants and take longer to fill your property.

On the other hand, if you discover that your neighborhood has a high demand for rentals, then you can charge a competitive rent price and find prospective tenants faster. Rental sites like Realtor.com® can show how many rental listings are located in your area, and the average rate of rent for homes like yours.

2. How Profitable Is Your Property?

There are operating expenses you will need to cover to keep a rental property running smoothly for your prospective tenants. This usually includes your mortgage payment, property taxes, landlord insurance, maintenance costs, and turnover expenses. If you've been able to determine a rent price that's both competitive and can generate a profit each month, you could use that price and a rough estimate of your operating expenses to decide if renting out your property would offer an attractive return on investment (ROI).

If there's a very low rate of return on your property, then it may be worth selling if you're able to list your property at a higher asking price than you purchased it for. But if there is great rental income potential, then you can increase your monthly income by turning it into a rental.

3. Are You Ready to Become a Landlord?

Although the money generated from a rental is considered passive income, becoming a landlord comes with quite a few responsibilities. You'll need to advertise your rental, screen prospective tenants, create lawyer-reviewed lease agreements, collect rental fees, and repair any maintenance issues. You can opt for hiring a property manager, but this can add an additional cost and reduce your overall profit each month.

If you want to avoid hiring a property manager and reduce costs, you can leverage a property management software platform like CreditLink to help streamline all steps of the rental process so you can manage them yourself.

4. Does Your Property Offer Great Amenities?

Properties that offer amenities such as in-unit washer and dryer, stainless steel appliances, WIFI, or a backyard have a higher chance of catching the interest of prospective tenants. They also allow you to charge more in rent, since the overall value of your property increases the more it can offer. If your property does not offer a multitude of enticing amenities, then it may not attract interest from local tenants.

5. What Is the Current State of the Housing Market?

In real estate, a seller's market is when more homebuyers are looking for their next home than available properties on the market. When that's the case, sellers can charge more in their asking price. On the other hand, a buyer's market is when less homebuyers are looking for homes than available properties. Sellers often have to bring down their asking price to avoid having their property listed on the market for too long.

If you find that it's currently a seller's market, then it may make sense to sell your property. But if that's not the case, then you can rent out your property until the market favors sellers again.

When to Sell Your Home

If you find yourself in the following examples, it may be a good idea to sell your home versus renting it out.

1. You need cash to cover the upfront costs of buying your next house such as the down payment, mortgage lender fees, homeowners insurance, and property taxes
2. You're not interested in managing a rental property or hiring a property manager to help
3. You're qualify for capital gains tax exemptions that allow you to exclude up to $250,000 or up to $500,000 of capital gains from the sale when completing your taxes

When to Rent Your Home

Here are some examples in which renting your home may make more sense than selling.

1. You plan on returning to the area the property is located within the next year or two
2. You want to generate passive income through rent payments and other rental fees
3. You expect the value of your home to increase within the next year or so
4. You're currently in a buyer's market, which can result in selling your property at a lower value than originally purchased

Selling vs. Renting: The Pros and Cons

If you're leaning towards renting out your property, then you may be wondering what the main pros and cons are of selling versus renting.

Pros of Renting

Renting out your house can bring in a wealth of rewards if approached strategically and logically.

1. Earn passive income: Rent payments, move-in fees, pet rent, and other fees can help you earn passive income. However, you'll want to ensure the price you charge can cover your operating expenses and is competitive with other rentals.
2. Keep a property you're attached to: If you've outgrown your property but still want to keep it, then renting allows you to still cover the mortgage with rent payments your tenants pay.
3. Expand your investment portfolio: Turning your property into a rental not only expands your investment portfolio, but it also diversifies it with assets that have a lower risk than other forms of investments.
4. Establish more home equity: Rent payments help cover the cost of your mortgage, and they can also help establish home equity during the lease term. The equity can then be used to finance other properties if you plan on buying another.

Cons of Renting

Even though renting is generally a great alternative to selling, this may not always be the best option for you.

1. Handling maintenance requests: You'll be responsible for handling most maintenance issues. Failing to do so can leave you open to a lawsuit from tenants or not receiving rent until the issue is resolved.
2. Miss out on a seller's market: Choosing to rent your property during a seller's market can result in you missing out on earning a decent profit from your property - especially if you're able to sell your property at a higher price than you initially bought it for.
3. Difficulty finding tenants: Not all neighborhoods have a high demand for rentals, which can make it harder to find tenants for your property. If you find that there's a higher demand for available properties versus rentals, then choosing to rent out your home can cost you more in the long run.

Make Renting a Breeze With CreditLink Secure

Both selling and renting your house have their pros and cons, but the decision should depend on the market and what you're ready to take on. If you've decided that you're ready to rent out your property, CreditLink can help you save both time and money to make renting easier. With CreditLink, you can create rental applications, draft and customize legal lease agreements, collect rent, and manage maintenance tickets, all in one place.

Streamline your rental experience today! Create an account to set up your property and manage everything in one place.