Updated May 15th, 2019
Once you decide to list your house, the process of putting it on the market is pretty simple. You call a realtor, they come to put a sign in your yard, and Ta-da! Your house is for sale!
Well, a lot goes on behind the scenes that you'll never see. But, from your perspective, it's pretty straightforward.
Sometimes, the decision isn’t as easy as it seems.
The alternative option to keep your home as a rental property can be just as enticing. But, there are some key considerations to think about before you make a final decision to sell or rent your house.
The main one is to calculate if renting or selling will be more profitable for you. Taking a look at the rental market in your area will help you figure out if there’s a chance that keeping your home will pay out in your favor.
In some cases, it might be best to sell and get rid of a headache you’re not ready to take on yet.
To determine that, let's first look at the benefits and risks of renting out your property, then decide if you should sell or rent it out.
Benefits of Renting it Out
When determining if renting is a valuable direction to take, here are some benefits you can take advantage of once you have a tenant in your house.
Choosing to retain your house as an investment doesn’t have to cost you much. In fact, it can pay entirely for itself and possibly more. Depending on how you set up your rental, the income can be completely passive with help from a management company or almost passive if you manage the interaction with your tenant.
Depending on your mortgage payment and the rental values in the area, you could possibly set rent at a price point to potentially cover your mortgage, paying a management company, and having some savings in case a repair on the home is needed in the future. At the very least, your tenants rent each month should cover the principal of your monthly mortgage payment.
Appreciation in Value
If you’re in an area where property values are continuing to go up, that’s a huge positive for you if you decide to rent out your house. The equity in the home will continue to increase, but your mortgage payment will remain the same. As tenants turnover, you can adjust the rental rate to meet the new value of the home and rental demands in the area, which can mean more money in your bank account.
Did you decide to rent out your house instead of selling it and you love it? Having a few rental properties is a great way to diversify your income. Investing in real estate is becoming a popular side hustle, but it’s not for the faint of heart. You will need to dedicate a lot of time to this venture if you decide to take the plunge.
In the end, if a rental property doesn’t have the outcome you desire, you can turn around and sell the house in hopes of making some money from any equity that built up while you owned it.
Risks of renting it out
There is some risk in every big decision and choosing to rent instead of selling has a few to be aware of. Once you know what they are, you’ll better be able to determine if they are risks you’re willing to take.
Just like hiring someone to work for you, you’ll want to interview tenants before having them sign a lease agreement. Remember, the interview isn’t the same as a trying to fill a space in your company. It takes more time than that.
Rental applications typically ask for rental history so that you can assess the applicant’s track record or if you’ll end up evicting them before the lease is up. Do some research on red flags to look for when interviewing and conducting background checks on tenants to make sure you’re not fooled.
As a homeowner, you know that a house doesn’t decide to break during the most convenient hours. An air conditioner breaking in the dead of summer at 2:00 A.M. is something that could actually happen, and guess who is going to get that call? Being a landlord is a 24/7 job.
Property management companies can alleviate some of the late-night calls, but they won’t be able to rule them out completely. To maintain the value of your home and the relationship with your tenant means making sure any repairs or concerns are addressed sooner rather than later, even if it’s at 2:00 A.M.
In the beginning, it might cost more to get your home rental ready. It’s not something ever future landlord can afford.
Just like selling a house, certain repairs and fixes should be taken care of before tenants even start looking to rent your house.
Having these repairs down before move-in will increase your chances of renters agreeing to the posted rental price. It will also get them in the home sooner rather than wait for repairs to be made.
Once you know what repairs need to be done, calculate how long it will take to get that investment back. If you’re financially comfortable to wait a few months for the rental income, maybe renting is for you! If your bank account is going to be stretched and the equity in the home will pay you back quicker, selling may be a better option.
Risk vs Reward
In the end, the final decision is going to come down to risk vs. reward.
The reward of having great tenants who give you a steady income and treat your home well is incredible. But, it doesn’t entirely eliminate the risk of having to evict a tenant or make a significant home repair on your dime.
If you want to have a truly passive income, investing in stocks might be better for you. However, having a stellar property management team on your side can increase your return in the rental game if you choose to invest in that. The choice is yours!
Written by Lauren Stewart who is part of the Ideal Real Estate Investing team. IdealREI.com is a website about real estate investing, financial independence, and early retirement achieved with passive income from real estate.