If you presently have a home but have to move to a new house, you may wonder what the best option is – to rent or sell your current place? Well, it’s a big decision whether to sell or rent a home — and not something to take lightly.
Both options have benefits, but drawbacks still exist. Below are three things that can help you understand better which choice is right for you.
Taxes are a significant area of interest for both rent and sale. You will need to consider the issue of Capital Gains Tax when selling your home. There are tax breaks connected with homes in which you have resided for two of the past five years, which can allow you to forgo taxes on capital gains. It discourages people from renting their homes, but they may be subjected to these taxes if they do decide to sell later. The general guideline is that you are better off selling the home than renting it if your personal residence has a big capital gain.
There are also tax issues to consider in renting out your home. There are some tax advantages associated with being a landlord— for example, the various deductions associated with renting a home will effectively remove any rental income taxes. Keep in mind the issue of capital gains, and also note that any value you depreciate from the home will also be taxed.
Some of the costs you can exclude include out-of-pocket expenses, such as property taxes and mortgage interest payments, that come with owning and maintaining a rental property. You can also exclude from your tax advertisement, broker fees, repair and maintenance costs.
Cost of Renting Out and Owning
The next key factor influencing your rent or sell decision is the rental rate. A lot of money is required to buy a new home, and they can easily raise the capital by selling their current residence. There are also high cash reserves required to own more than one house.
For a rental home, cash reserves are important because there are occasions when rental properties are empty, tenants do not pay rent or other factors affecting cash flow, but mortgage payments still have to be made. Damage and other concerns that may arise with a rental property also need to be addressed.
Certain general costs, such as replacing broken appliances, cleaning carpets, painting, and other general maintenance costs for which the landlord is responsible, are to be addressed. Add all these to the cost you still have to incur in your new home. Can you manage both?
Becoming a Landlord
One major downside for many people is the stress of being a landlord. Being a landlord requires a lot of responsibility, dealing with various types of tenants, numerous tenancy agreements, etc. Attention must be given to many factors. As a landlord, at any time of the day you can be called for repairs— and it seems they happen at the most inconvenient of times. Many homeowners employ companies to supervise their rental homes, but this can be expensive.
If becoming a landlord is a daunting idea, selling your home may be the best choice, but if you’re interested in becoming a landlord, renting can be a great choice. Once you take on the responsibility of managing a rental property, it is recommended that you do some research and educate yourself about the process of renting a home and researching local rental laws. Basically, it’s a personal decision to rent or sell your home.
You need to ask yourself “Am I ready to be a landlord?” and if the answer is yes, then it’s time to get your property on the rental market and get going.