When the time comes to move, one of the biggest decisions you'll face is what to do with your current home. Should you sell it and use the proceeds for your next chapter, or hold onto it as a rental property to potentially build long-term wealth?
It's a common dilemma, and the right answer isn't always clear. Whether you're intrigued by the idea of generating rental income or concerned about the responsibilities that come with being a landlord, there are several factors to consider.
Let’s explore some key questions that can guide you in making the best decision for your situation.
Is Your Home a Good Candidate for Renting?
Even if the idea of becoming a landlord appeals to you, your current home might not be the best fit for a rental property. Perhaps you’re relocating far away, making it difficult to handle maintenance. Or, maybe your neighborhood doesn’t attract renters, or your home needs significant repairs before it's rental-ready.
If any of these scenarios sound familiar, selling might be the better option.
Are You Prepared for the Realities of Being a Landlord?
Owning a rental property isn't just about collecting rent checks. It can be a demanding and sometimes challenging role.
For instance, you may receive calls from tenants at all hours with maintenance requests. There could be situations where a tenant causes damage that needs repair before the next lease begins. You might even face issues with late payments or tenants breaking their lease early. As Investopedia points out:
“It isn’t difficult to find horror stories of landlords troubled with more headaches than profits. Before deciding to rent, consider talking to other landlords and doing a detailed cost analysis. You might find that selling your home is a better financial decision and less stressful.”
Do You Understand the Costs Involved?
If you’re considering renting out your home mainly to generate extra income, it’s important to remember the additional costs you’ll need to cover. As Bankrate highlights:
- Mortgage and Property - Taxes These expenses still need to be paid, even if the rent doesn’t fully cover them.
- Insurance - Landlord insurance is about 25% more expensive than regular homeowners insurance, but it's necessary to cover damages and liabilities.
- Maintenance and Repairs - Expect to spend at least 1% of your home's value annually on upkeep, with older homes potentially requiring more.
- Finding Tenants - This involves advertising costs and possibly paying for background checks.
- Vacancies - If your property sits empty between tenants, you'll lose rental income during that time.
- Management and HOA Fees - Hiring a property manager can ease the workload, but they typically charge around 10% of the rent. Additionally, HOA fees may apply if your home is part of a homeowners association.
Ultimately, whether to sell or rent out your home is a personal decision that hinges on your unique circumstances. Whatever you choose, taking the time to carefully evaluate your options will help you make the best decision for your future.
Weigh the pros and cons, seek advice from professionals, and ensure you feel well-informed and supported as you move forward. A real estate agent can be a valuable resource in guiding you through this decision-making process.
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