Real estate investment is always a safe option to improve your financial growth and security. The current market scenario offers several opportunities for property owners to earn significant ROI on their houses, with the US average being around 8.6%.
However, when you have to relocate or upgrade to a new house, property owners most frequently ask whether they should sell or rent their current property.
There are advantages and disadvantages of both these options. Selling your property gets you a lump sum, which is enough liquid capital to finance other investments. On the other hand, renting your house can provide you a steady flow of income that can help you sustain your mortgage payments.
Here are a few aspects that can help you decide whether you want to sell or rent your property.
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Calculate Your Net Profit
Calculating the profit is an essential step in deciding the future of your asset as it helps you determine what will get you a better positive cash flow – a sale or a lease.
Analyze the current demand patterns and deduct all expenses such as taxes, mortgage, general maintenance, and utility bills to see if renting out your property gives you potential surplus capital. If yes, you can consider going ahead and renting the house.
To know if you should sell the property, calculate the expected ROI before selling the property and see if it gives you more than your expected rate of return after deducting agent fees and other sales expenses. If the answer is yes, you can choose to sell the place. Else, if the ROI is less than anticipated, it is better to wait for the market to improve.
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Analyze The Condition of The Property
The condition of your property can make it a liability or an asset. Study the state of the property and identify potential maintenance costs over your holding duration.
If your property is in good shape, is located in a desirable neighborhood, and does not need a lot of heavy repairs in the near future, renting it is a good option. Having said that, being a landlord is not easy. One has to keep an eye on everything such as maintenance, tenant needs, taxes, cleanliness, and a lot more.
Taking this responsibility can be daunting, especially if you are moving out of state and not hiring a property manager. If keeping track of monthly maintenance issues and following up with tenants for rent is not your cup of tea, you may be better off selling your property.
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Calculate Your Tax Benefits
Every asset that produces income is taxable. Taxes are applicable both on renting and selling your property. All your rental income must be recorded on your tax return. Suppose your gross yearly rental income is $25,000 and you have incurred $15,000 in expenses, you are supposed to pay taxes on $10,000. Similarly, if you sell the property, you will be expected to pay taxes on the profits from your sale.
One advantage of renting your house is that you can deduct monthly rental expenses from your tax returns. In addition, there are several other tax write-offs you can avail of as a landlord. However, you need to understand all federal taxation laws before investing in real estate or consult a tax professional to guide you through the return filing process.
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Assess Your Readiness to Sell the Property
Often, homeowners have an emotional attachment to the houses they are planning to sell or rent, especially if it has been their home or their first property. If that is the case, you need to analyze if you can handle renting a property with which you have such a strong connection.
You need to be aware that if you rent out the property, you cannot simply pop over for a visit just because it was your old home. Also, if the tenants are not maintaining the house well, it may tarnish your memories of the place.
On the other hand, if you think you can maturely handle leasing the property, renting it can be a good idea since you already know the place inside out.
At TCS Management, we offer full-service property management for Philadelphia, Pennsylvania, Cherry Hill, NJ, Wilmington, and Delaware properties. Our experienced property managers offer knowledgeable advice based on the financial goals and objectives of our clients. If you need a professional opinion in analyzing whether you want to sell your house or rent it, connect with us at TCS Management.
