Before you decide whether to rent or sell your house, there are financial and personal factors that should be weighed.
The most important suggestion I can make is that you need to get professional advice from a real estate agent, an accountant, a mortgage advisor (if your home is not paid off), as well as a financial advisor before you ask yourself whether you should rent or sell your house.
Meanwhile, here are some questions you may want to consider in order to make the best decision for you and your family.
Rent vs. Sell
1. What is your financial situation?
Will this property generate a cash flow? Once you have deducted all the associated expenses (mortgage, taxes, insurance, utilities, management, vacancy, repairs, homeowners’ association fees, etc.) will the property be able to carry itself? Look at your equity, if you have a high amount you will have lower mortgage payments and more likely to have positive cash flow when renting the property. If you don’t, will you be able to afford the expenses if you don’t have a tenant for several months? This handy rent versus sell calculator will help you figure out the math.
2. What are the tax implications?
Will you get any additional tax breaks by renting vs selling? In general, you may be able to deduct certain expenses for your rental property which would effectively reduce the amount of tax you will owe. A potential list includes mortgage interest, property taxes, insurance, maintenance and upgrades, property management and utility bills if you include them in the rent. Of course, this will also be dependent on how the property is structured and your overall adjusted gross income. It is important that you talk to an accounting professional to determine what is best for you, as every situation is different. You can also check out this great article to learn more about the tax benefits of renting Vs. selling a House
3. What does the local real estate market look like?
Is there a demand for rental property in your area? What is the average rental price? Which way are property values moving in your neighbourhood? A consultation with a real estate agent is paramount here. You will need to find out your neighbourhood’s market rate for rent as that will determine your rental income, not the amount you need to cover your mortgage payments. Most importantly, a real estate agent will be able to give you an estimated amount your property will likely sell for so you can determine what will be more profitable in the long run. Selling your property now and investing the money or holding onto it and selling for a higher amount later.
4. Are you cut out to be a landlord?
If you rent out your property, you will be responsible for maintaining it, which includes plumbing, repairs, upkeep, etc. Having a side cash fund to deal with emergencies that may pop up – like a broken water heater – is imperative. Are you the type of person who can live with the idea of renters possibly damaging your home, and if required, will you be able to evict a renter who can’t afford to pay? You will need to study landlord-tenant laws as well as interview prospective tenants and be available when you receive late night or weekend calls about your property. Of course, you can always hire a property management agency, but that will eat into the income you are receiving.
5. Where is your life going?
Where do you see yourself in the future? Is your retirement portfolio diversified with investments or land? At some point, with a rental property, you will have a debt-free asset you can sell or an income producing asset you can keep in retirement. However, if you picture your retirement on a beach in Florida, it may not be feasible if you are managing rental properties.
Considering selling your home? Make sure you see our tips for selling a home in 2017. If you have any questions, please contact us at info@christensengroup.ca or call 416-441-2888 and we will do our best to provide you all the information you need to make an informed decision.
