Selling vs. Renting – What to Consider
Are you at a crossroads? Not sure whether you should sell a property or whether you should rent it? What makes the most financial sense? What is the logical thing to do? Well, to make a decision as big as this, we are here to help!
The reasons are many and there is a lot to consider. You have to figure out the pros and cons of each situation and see what will help you sleep at night. For instance, if you are a landlord and know for a fact that you can get higher rents to meet your mortgage obligations but you don’t have the bandwidth to make the necessary renovations, you will forever be stuck in a cash flow negative situation. If you are making good monthly income from your rental but hate being a landlord, you might consider hiring a property management firm that handles the day to day issues you want no part of.
Regardless of the situation, here are some items to consider before you make a move. Frame out each issue and tailor it to your specific situation to get a clear picture of what decision to take.
Do I Sell or Rent?
How much are the monthly expense pain point?
Does your stomach turn every month trying to make a mortgage payment? If you can or have rented the property and earn enough to cover mortgage payments, maintenance costs, utilities (if applicable), insurance and taxes with some left over, that’s a check mark for renting. Then you are breaking even or slightly under water but can stomach that, consider the area and whether the appreciation of the property makes it all worth it. Renting your house and being cash-flow positive is a great investing strategy. One which pays off the mortgage, allows you to redeem appreciated value and some possible monthly income. But you have to be ready to cover unforeseen circumstances. You might need a new roof. You may have an unexpectedly long vacancy. You may have a tenant that refuses to pay their rent. If that were to happen, do you have enough set aside to weather the storm?
Some useful back of the napkin equations to use when calculating some of these costs –
- Repairs & Maintenance – 9% of Monthly Rental Income
- Property Taxes – .015 X Property Fair Market Value
- Property Insurance – .005 X Property Fair Market Value
If meeting these financial obligations is a constant pain point, consider selling your property. If it is in good condition in a good area, you can list it with a realtor and expect to pay 6% in commission (typically 3% to your realtor and 3% to the buyer’s agent). If the property needs a lot of work or selling quickly is important, you have the option of selling the property in “as-is” condition without paying any repair costs or realtor fees. We Buy Any Philly Home, for instance, purchases property from people without them having to pay realtor commissions or closing costs. If you are looking for a quick hassle-free way of doing it, selling without a realtor might be the best option.
Responsibilities of Being a Landlord
Becoming a landlord requires your time, effort or money. There is no way to get around that. But is it worth it? There are advertising expenses to fill a vacancy, costs around flushing out potential tenants, accounting requirements to handle rent payments and the possible 3am call if the heater breaks in the dead of winter. To avoid a lot of this hassle, some landlords opt to hire a property management company that handles the bulk of these issues. If you are cash flow positive after paying those fees, it might be a good option to consider.
Balancing the Pros & Cons
It is pretty clear that selling your house or renting your house is no easy task. Each decision comes with pros and cons to consider and play out. If you are motivated to handle the pain points associated with renting and have enough net income to cover all the expenses and feed your emergency fund, renting might be a desirable option.
If you opt to sell your property, know that there are easier and faster options than just listing it with a realtor. It is worth considering if you are in an emergency or if you want to avoid clean-outs, commissions, and repairs. Whatever you do, make sure it feels right.