If you’re ready to move, you don’t always need to sell your home. If it makes financial sense, you could always rent it out and keep it along with your new home. Both avenues have clear pros and cons. You should consider all your available options then choose which makes the most sense for your situation and goals.
Selling Your Home
The sale of your home will yield a lump sum of money. Most often, people use this money to pay off their existing loan and then make a down payment on a new home. The main advantage is that you don’t need additional money out of pocket in order to finance your next purchase. This is especially true if you made improvements and your home increased in value.
If you’ve let your home deteriorate and extensive repairs are needed, it might be best to make a quick sale and get out, especially if you can’t afford the repairs. Maintenance typically costs 5-10% of a property’s value each year. The more you get behind, the more this cost goes up.
Renting Your Home
An advantage of turning your home into a rental is that you may be able to generate an income above the expenses to maintain the property. However, don’t assume that if the rent you receive is more than the mortgage payment, that you’ll be making money. You’re still on the hook for maintenance, insurance, property taxes, and the like. Many homes will not rent for more than the mortgage payment because most people who can afford the mortgage don’t rent.
If the numbers work out, renting your home can be a nice supplemental income stream. If it doesn’t work out well, you always have the option of selling it later. Renting it out can be temporary if you need to relocate for work, but will be able to move back in a year or two. Be sure to find renters who will care for your home.
Being a landlord has clear downsides too. You’ll have to find quality tenants, address their needs and complaints, and you might even have to evict tenants who don’t pay. Tenants who are evicted sometimes damage the property before they leave. If your finances allow it, you could hire a property manager to handle these issues for you.
Making a Decision
The best option depends on what your long-term plans are. Renting your home may be manageable if you will continue to live in the area. If you would like to move away for a few years and come back, hanging onto a great home might be a good idea, even if renting it doesn’t make any money.
If you’re moving out of state forever, selling your home very likely makes the most sense. Being a landlord at a distance is not for the inexperienced landlord. Unless you can finance a new purchase, you’ll probably need to unlock the equity from your home when you move.
Do in depth research on your local real estate market. Will the value of your property stay where it is over time or is the market near the top of a cycle? If you’ve seen a lot of appreciation over recent years, cashing out may be wise. If you’re “underwater”, it may make sense to rent it while you wait for the market to come back around. There are always options other than simple buy or sell.