When it’s time to move from your house, you might be wondering what you should do with the property. Is it better to sell the house and use the money towards something else, or keep the property and rent it out to tenants? Hear an Inspiring Home, we’re going to go over the pros and cons of selling versus renting your home. Hopefully, after you have all of the information in front of you, it will become easier to make that decision.
8. When You Become a Landlord, You’re Stuck With A Lot of Extra Responsibilities
As a homeowner, you are responsible for any repairs that need to be done. This is true whether you are living in your own house, or if someone else is. The only difference is that if you are living in your own house, you can always put off work until later. But if something goes wrong if a tenant is living in your property, you are obligated to repair the issue within a reasonable amount of time. This can be anywhere from 24 hours to 30 days, depending on what a court would considered a “reasonable” amount of time to wait. For example, if your tenant can’t even use the bathroom because it’s overflowing, that’s a pretty urgent issue!
These emergency repairs can drain your bank account, but it also takes up a lot of time. Dealing with tenant issues is a big reason why many landlords will hire a property manager to take care of the issues that come up with their renters. However, this is something that you can work to prevent from happening often. Before you rent your property to anyone else, make sure that you fix anything that could potentially go wrong in the future. You could also hire an inspector to look over the property to find any problems that may crop up soon. And if you do a thorough background check and pick a good tenant, you might go months at a time without hearing from your tenants, and it can feel like passive income.
7. Keep The Current Housing Market in Mind
When you’re trying to make the decision of selling versus renting your home, keep the overall current housing market in mind. Depending on the time that you read this, it may or may not be a great time to sell a house. For example, after the 2008 stock market crash, housing prices plummeted as people defaulted on their mortgages. This was a terrible time to sell your house, and you would have been much better off renting, instead. It was what was called a “buyer’s market”.
At the time I am currently writing this in 2021, it’s definitely a “seller’s market”. This means that the seller is getting a much better deal. Housing prices have skyrocketed since the Covid-19 pandemic. Prices are up 8%, new home builds are up 21%, and it might not last for long. Some people are predicting that at some point in 2021 or 2022, there could be a housing market crash. Right now, there is a shortage of houses on the market, and a fairly priced home in good condition will sell within just a few weeks. For some of you, this might be the best chance you have to get a lot of money for your house.
6. When You Rent, You Become Responsible For Two Houses
Being a homeowner can be stressful at times, even if you have just one property. So when you become a landlord, expect to deal with double trouble. According to The Motley Fool, you need to budget at least $2,000 to $8,000 per year for your average annual home upkeep. This doesn’t take into account that there could be big emergency bills to pay if something goes wrong that isn’t covered by your homeowner’s insurance. So if you are a landlord who owns two houses, go ahead and double that average upkeep to $4,000 to $16,000 per year.
5. When You Sell Your House, You Get One Lump Sum. When You Rent, the Income Continues
One of the benefits of selling your house is that you get one lump sum of money. This can be used to pay off your existing mortgage, and the money can also be used as a down payment towards your next house. For some people, this is the best financial decision that they can make. It’s especially useful if you plan on downsizing or selling your house and becoming a renter yourself.
However, one of the downsides to getting a lump sum of money is that you might not make as much as you would have if you became a landlord. For example, pretend that you bought a 3-bedroom house for $150,000. Let’s assume that your mortgage, tax, and repair payments every month adds up to $1,000. If you can charge your tenants $2,000 a month, that’s $12,000 per year that you earn in profit. Within 10 years, you should be mortgage-free, if you put all of your profit into the house. And with appreciation, the value of the home would have gone up substantially, since the average appreciation is 7% per year.
4. Renting Out Your House Can Help Grow Your Wealth
If you choose to become a landlord, you can do something called a cash out refinance. Usually, if you have equity in your house, this means that you can pay off the first mortgage with the new loan and use the remaining equity as a down payment for a second house. This is a method used by millionaire real estate investors Graham Stephan and Kevin Paffrath. Check out Graham’s video down below where he explains how he buys and holds real estate and turns this into millions of dollars.
However, the downside to a cash out refinance is that it leaves you on the hook for two (or more) massive loans. While it works really well for some people, it can also get other people into deep trouble. If you want to try out the BRRRR Method, make sure you are actually ready.
3. One Big “Pro” to Being a Landlord is That You Can Write Off Expenses
When you run a business, you can write off business expenses on your taxes. This helps you pay less taxes on your profits when you’re ready to file. This is a great way to improve a property and get the repairs written off. So when it’s time to sell, you may end up saving more money in the end. With that being said, home owners are also supposed to hold onto house receipts to keep track of their spending, too. However, many homeowners forget to do this. According to Mynd Management, there are even some “hidden” deductions that landlords can take.
2. When You’re a Landlord, You May Be Stuck With An Eviction Nightmare
Depending on the time you’re reading this, a huge thing to consider with selling versus renting your home is the current eviction ban happening in the United States. The eviction ban was supposed to end in December of 2020, but it has been extended to March 31, 2021, and may be extended even longer. This was due to the fact that millions of people lost their jobs because of the Covid-19 pandemic. It caused people to be delinquent on their rent and mortgages. That doesn’t mean that these people get away with free rent. They still owe their rent to the landlord, but they just can’t be kicked out for not paying. Even so, there are plenty of landlords who are now left without their rental income.
Before 2020, a landlord would have the right to send an eviction notice a tenant if they were just 3 to 5 days late on their rent. Depending on the state, people were given a certain amount of notice to vacate the property, by order of the local sheriff. (For example, in New York, it’s 14 days.) This was designed to help mitigate damages to the landlord was much as possible. But in a lot of cases when people get evicted, they are often angry and bitter. They might leave your property in a terrible state. Most of these cases get messy, and end up going to court. As it stands right now, this situation is only going to get worse before it gets better.
1. We May Be Heading Into a Market Full of Renters
When you’re deciding on selling versus renting your home, it’s always a good idea to look towards the future. People typically take 30 years of pay off a mortgage, so you’re going to have your house for decades. No one can 100% predict what’s going to happen. However, there is plenty of evidence that we are about to have a “flood” of evictions and people moving to new locations. Many of these people are going to be in financial trouble, and will need to rent a home instead of buying. Evictions are public record, and will show up on a background check. But for the people who have managed to keep the eviction or foreclosure at bay, they still may be moving whenever the pandemic is over.
Even with the current mortgage rates being at a historic low, that doesn’t make up for the fact that the pandemic caused a lot of people to eat into their savings. Any money they may have had for a down payment on a house may be gone. Their credit score may have gone down, and any number of factors could inhibit their ability to buy a house. Only time will tell, but there is a good chance that you could make significant rental income in the future.