Establishing whether you should rent or sell your property can a big decision, and it is not something you can afford to take lightly. This is the primary reason why you should take time to evaluate each option carefully to make a sound decision that favors you in the long run.
While there are plenty of benefits for both options, there are also drawbacks. In this post, we discuss the pros and cons of each option to help you make an informed decision.
Pro & Cons of Renting
There are several pros and cons to renting your property other than selling it off. Renting out your home can diversify your income streams and investments, helping you lower your financial risk.
For instance, if you lost your job unexpectedly, you will still have a source of stable income. The other advantages of renting your property include;
- It is relatively easier to rent your home than sell it: Depending on where you stay, it might be easier to find a tenant than it is to find a homebuyer. The truth is that selling a property is generally a tedious process that consumes a lot of time.
- You can still take advantage of home equity: There is no need to sell your property if you really like the neighborhood. By renting it out, you can still play to the dynamics of your local real estate market without having too much at stake. After all, you’ll always have your capital tied up in the form of home equity.
- Tax shelter: While renting your home, you can write off all of your expenses. Technically, the cost of repairs, management, maintenance, and utilities is passed down to the tenant. You can also depreciate the value of your property hence lowering your overall tax liability.
- Renting provides you with the opportunity of moving back to your home if need be: While considering whether to rent or sell your property, it is also good to evaluate the qualitative advantages of renting. By renting your home, you can still get the tenant out and move back into it.
However, there are also some cons of renting your home. They include;
- Market rents tend to fluctuate a lot, and your property may generate less rental income than you had anticipated. It can even sit vacant for several months, causing an unexpected financial strain.
- Dealing with tenants and general maintenance of the home is something that can be stressful, time-consuming, and draining.
- Depending on your financial situation, renting your property may hinder your ability to find a mortgage to purchase another home elsewhere.
Pro & Cons of Selling
Selling your property can be a tough decision because it is the only place you call home. You have probably created a lot of memories, and it is just hard to let it go.
But, sometimes, selling your property instead of renting it can be the best decision for you. Some of the pros of selling include:
- Selling frees up significant capital that you can invest elsewhere. This means that you don’t necessarily say goodbye to being a homeowner. You can use the money to purchase another home wherever you want.
- Selling also makes sense if you are looking to upgrade to a better property or are not planning on coming back to where you currently live.
- Selling off your property will most likely demand less of your energy and time than renting it. Since you will not become a landlord, you don’t have to deal with the numerous time commitments involved in renting out a property.
- Also, if you feel like the real estate market in your area is going to experience a sharp decline in the coming years, then it will be good to sell off your home. This will help you generate as much income as possible before things start to go south.
Unfortunately, there are also a few disadvantages to selling your property. They include:
- If you have a large amount of home equity in your property, you may end up paying capital gains tax on the amount above the set threshold depending on your property income.
- You also lose out on the potential appreciation of the property value in the future. This should be a serious consideration, especially if your home is in an area with a relatively stable housing market where property value continues to rise.
- Lastly, it may be difficult to sell your home unless you lower your asking price if the local property market is declining. The last thing you want to experience is your home overstaying on the market since it usually turns off potential buyers.