An introductory guide to selling versus renting out your home in today’s real estate market
Thinking of renting out your home? Make sure you are prepared before making the leap.
Selling one’s home often seems like the obvious choice when it’s time to move; but in today’s market, the idea of renting out your home until property values recover may have a fresh appeal.
According to a recent real estate column for Smart Money magazine, the desire to either wait out the market or simply hold on to property during a temporary absence often motivates homeowners to take on landlord duties. But before committing to one option over the other, it is important to understand the financial pros and cons of your decision, including tax issues, affordability and the responsibility of taking care of tenants.
Taxation perks and penalization, as well as basic investment benefits, vary considerably depending on whether you choose to sell or rent your home; and regardless of which option you choose, there are bound to be both advantages and risks.
When homeowners decide to sell, they accrue the potential benefits of tax-free capital gain, available equity to invest in new real estate, and the simplicity of dealing solely with a single residence. However, they also risk difficulty selling at their ideal price, as well as losing out on potential appreciation value.
Based on current home prices throughout San Diego and the rest of the state, such considerations may make renting seem more lucrative to some. But be warned: while renting allows homeowners to keep their property as it (hopefully) appreciates in value, and grants them the added bonus of both tax breaks and a steady rental income, it also finds them liable for property damage and upkeep, as well as income taxes and potential legal or financial disputes with tenants.
This leads to the next deciding factor between renting and selling: namely, are you ready and willing to be a good landlord — or at least to shell out 10% of your monthly tenant income to pay a property-management firm to do the job for you? If you plan on moving out of the immediate vicinity of your current home, a property manager is a veritable necessity to ensure proper handling of maintenance issues, rent collection, tenant screening and other related concerns. Then again, if you are simply moving to another home in the same area and anticipate significant appreciation in your property’s value in the coming years, being a landlord just might work to your advantage.
According to a recent real estate column for Smart Money magazine, the desire to either wait out the market or simply hold on to property during a temporary absence often motivates homeowners to take on landlord duties. But before committing to one option over the other, it is important to understand the financial pros and cons of your decision, including tax issues, affordability and the responsibility of taking care of tenants.
Taxation perks and penalization, as well as basic investment benefits, vary considerably depending on whether you choose to sell or rent your home; and regardless of which option you choose, there are bound to be both advantages and risks.
When homeowners decide to sell, they accrue the potential benefits of tax-free capital gain, available equity to invest in new real estate, and the simplicity of dealing solely with a single residence. However, they also risk difficulty selling at their ideal price, as well as losing out on potential appreciation value.
Based on current home prices throughout San Diego and the rest of the state, such considerations may make renting seem more lucrative to some. But be warned: while renting allows homeowners to keep their property as it (hopefully) appreciates in value, and grants them the added bonus of both tax breaks and a steady rental income, it also finds them liable for property damage and upkeep, as well as income taxes and potential legal or financial disputes with tenants.
This leads to the next deciding factor between renting and selling: namely, are you ready and willing to be a good landlord — or at least to shell out 10% of your monthly tenant income to pay a property-management firm to do the job for you? If you plan on moving out of the immediate vicinity of your current home, a property manager is a veritable necessity to ensure proper handling of maintenance issues, rent collection, tenant screening and other related concerns. Then again, if you are simply moving to another home in the same area and anticipate significant appreciation in your property’s value in the coming years, being a landlord just might work to your advantage.
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