A young, growing family needs more space. An individual inherits a home from a relative. Two homeowners decide to get married. Many life circumstances may leave people wondering whether they should rent a house or sell it. There are several factors that can play important roles in making this decision, and you should take the time to consider them if you are in this situation.
Readiness To Be A Landlord
Most people today are extremely busy and making the decision to take on the role of a landlord needs some serious consideration. If you decide to rent a house, you are making a commitment to screen, interview and select tenants as well as manage a property that you do not live in. Renting a house often involves hundreds of details that can require time and money. It often means being available around the clock to answer calls and deal with emergencies. You will need to decide if you want to take on such a responsibility or work with one of the many local property managers to help you with landlord tasks.
Perhaps the most difficult factor in being a landlord is dealing with the unknown of prospective tenants. Take the time to conduct financial, background and criminal history checks or contact one of the property managers in the area for assistance.
Another consideration is what needs to be done to get the property ready to rent. Time and money may be required to paint, clean or repair the property. It’s important to find the right balance by taking care of the important things while not over-spending on minor details. Renters are often more forgiving about some outdated fixtures and investing in a lot of money in these areas is often not worth the investment.
Expense vs. Income
If you decide to sell a property, you invest a certain amount of time or money to prepare the property for sale, work with an interested buyer to agree to a price and leave with your check. No further expenses or commitments are tied to the property, and you can move on with your life.
If you decide to rent a property, you will want to balance the investment of time and money against your expected return on investment. Property owners who are able to retain quality, long-term renters who are responsible about their homes can generate a positive income by renting. If the property is in a desirable location, your rental price can significantly exceed your expenses, increasing your profit. However, even if you can only cover expenses, there is a benefit of using renters to pay off the mortgage on your property. Once the property is paid off, you have a significant asset to sell or rent for future income.
Besides obvious expenses like the mortgage, real estate taxes, insurance and repair costs, don’t forget expenses like homeowners association fees, monthly condominium fees or required assessments. Plan to set aside 1 percent to 2 percent of the value of the property for annual expenses.
The risk in renting a property is that your investment could sit idle, leaving you with the expense of a mortgage and upkeep expenses and no income. In a worst case scenario, a tenant does damage to your property, and you need to foot the bill of the repairs with no income and no livable unit to rent in the meantime.
For assistance in making the right decision as well as for potential assistance in managing a rental property, contact a property management company in Bexar County.
Length of Ownership
Property owners should consider the amount of equity in their property and how long they plan to keep it. Real estate must be a long-term investment, and property owners who don’t plan on holding onto their real estate for at least five to 10 years should consider making an investment elsewhere. Even if renting a property short-term generates some income, you may lose in the long run if you sell before you gain equity in the property.
Holding onto a property for a longer period of time allows you to take advantage of an appreciating market as well. If you lose some money in the short-term or break even on rental prices, but the property is in an area that is appreciating faster than surrounding neighborhoods, selling the property later can make up for the short-term losses.
It makes sense to work with a certified public accountant to look at your overall income and portfolio to see how keeping or buying a property and renting it will affect your taxes. Everyone has a different overall adjusted gross income, and all properties are structured differently.
For instance, in one situation, your cash-flow might look neutral if you’re considering straight depreciation, but you will actually sustain a tax loss when it comes time to file because of your adjusted gross income.
Or, in another case, you might have a unique situation where you occupy a home for a time and need to relocate temporarily. As long as you owned and occupied your home for two out of five years and rented it for three, you still have the option of selling it without incurring capital gains tax on the sale.
A CPA can help you consider all the unique factors in your personal situation to help you make the best decision.
The housing market can be a tricky one to navigate, but it is an important consideration when making a decision to rent or sell a property. In some cases, renting out a property may generate a loss or a break-even situation. According to Walter Molony, an economic issues spokesman for the National Association of Realtors, most property owners who rent can be profitable.
For more information about local market considerations, you can reach out to a property management company in Bexar County. These professionals are often well-versed in market projections and the value of properties as well as the expenses associated with property management. Consider checking comparable sales from the last several years to see if you can find a trend as well.