Deciding whether to sell or lease your house when it's time to move can be a complicated decision. Many people assume selling their home is the best option to get the most money from your purchase. However, leasing your property could lead to increased profit over time. Here are some of the top considerations for anyone looking to sell or rent a home today.
What to Consider Before Leasing Your House
1. Down payments: One of the biggest things to consider when deciding to lease or sell is whether or not you need the funds to make a down payment on your next home purchase. If you are unable to come up with the 20% on your own, renting may not be the right option just yet. However, if you have tried to sell your home and you are unable to get a fair price, it could make more sense to rent while you wait for property values in the area to rise.
2. The associated costs: Another factor in considering whether you should rent or sell your house is the costs associated with leasing your home. This includes not just financial costs, but also opportunity costs such as time and energy:
- You will need to prepare yourself for routine maintenance expenses, especially when one resident leaves and the house needs cleaning and repairs before a new resident can move in.
- Secondly, you will need to have enough money set aside to cover any periods of vacancy when you will need to make both mortgage payments on your own.
3. Time as a factor: You will also need to set aside enough time to meet potential residents, go through applications, show the house, and more. Ideally this extra work would be limited to once a year (or even less) when a lease reaches its natural end, but realistically you will occasionally deal with residents who break their lease early, or who need to be removed for nonpayment.
4. Hiring professionals to help: If you are unable to perform maintenance on your own, or if your new home will be too far away for you to be reasonably accessible to residents in need, you should consider hiring a professional to do your repairs.
Hiring a professional property management company is an option for offloading some or all of these responsibilities. They not only help with finding and screening residents, but also take care of your property, manage payments and oversee maintenance -- even when a toilet overflows or a pipe breaks over the weekend.
5. Your taxes: Lastly, there are some tax implications to consider for many property owners. Consulting with a tax specialist or accountant can give you a better idea of what you can expect come tax season if you decide to lease.
The Benefits of Leasing Your Home
Despite the work, leasing your old home when you move can allow you to keep a major asset and build up some cash to purchase more properties in the future or fund your new home.
Many people choose to lease properties as a means of increasing their retirement savings, boost their monthly income and add to the net value of their assets. In theory, a property that remains leased on a consistent basis can allow you to own multiple properties while residents help pay the bills. You can charge a rental rate that covers the mortgage payment, taxes, and expected maintenance fees. Once the property has been paid off completely, residents continue to pay you rent which can be put away in savings or used to reinvest in more properties.
If you do end up working with a property management company, they can easily tell you how much you should charge for rent and what improvements you may be able to make to increase the rent of your property.
Leasing is an Investment
If you have been saving to buy a new house already, and you know you can make the second home purchase without needing to sell your previous home, leasing can offer you the ability to make a huge step toward financial security in the future.
Owning a rental property may allow you to continue earning equity without using any more of your own money. Down the road, you will have the option to either continue collecting rental income each month or sell the home once market values rise further. Either way, leasing your second home can be a smart investment for the future.