Moving Away? Rent or Sell?
As a homeowner, making the decision to move can be a difficult and stressful one. Whether it’s by choice or by necessity, relocating is not easy. Here is a common situation: You own a house or apartment in your current location, but now that you know you’re moving, what do you do with the property: rent or sell? There are benefits and disadvantages to both choices, and ultimately the decision comes down to not only what feels right to you, but how much of your financial future you are ready to seize. While the personal aspect is subjective, here are some tips and questions to ask yourself in order to help with the financial and strategic sides of your options.
Before making any decisions, sit down and ask yourself a few questions:
How long will you be away from your home?
What is the estimated market value of your home?
What are your expectations of the real estate market during your absence?
Do you have any liens on the property?
How much would it cost you to rent per month?
How much rent would you charge per month?
If you rent out your home, would you be the direct landlord or would you hire a property manager?
Is the house tenant-ready?
Are you open to allowing tenants into your home?
These questions you have to examine yourself, as the answers will vary significantly depending on each unique situation, but here are some points from industry professionals to consider for each one.
How long will you be away from your home?
If this is a temporary relocation, it would make the most sense to rent your home out so when you move back you won’t have to worry about finding housing, unless you want to relocate to a different part of your city anyways. If you are sentimentally attached to your place, you will be more reluctant to sell. If you are leaving for an unknown period of time or permanently, then your decision is more difficult. Additionally, if you have a small window of time before your departure, it may be easier to rent out your place or hand it over to someone who will find and place tenants for you. Renting is usually a quicker process, and you never know how long your house will take to sell.
What is the estimated market value of your home?
Before making a decision that will impact all parts of your life such as selling your property, you need to make sure it makes financial sense. Look at the mortgage balance, then the market value or expected sale price. Subtract the mortgage balance from the market value to find your expected profit or loss from the sale. Is it financially worth it to sell? If you owe more on your mortgage than the expected sale price, then look at the projected rent. If the projected rent would cover your mortgage, repairs, vacancies, management fees etc., then you should rent it out.
What are your expectations of the real estate market during your absence?
If the market is competitive, it might be a good time to sell. However, if you think the market will change (for the better) in the next 5 or so years, you should consider renting the unit until you are ready to sell or know you will get a better price for it. Evaluate the current market condition and do your research.
Do you have any liens on the property?
This could bring down your profit on the sale or perhaps limit the number of interested buyers. If you owe more than the house is worth, it is better to rent.
How much would it cost you to rent per month?
You need to consider your mortgage payment (if you have one), property taxes, repairs and improvements, advertising for vacancies, accounting fees, property management fees if necessary.
How much rent would you charge per month?
You will charge more than the cost of your expenses and mortgage payment, but how much? Depending on your situation, your tenant's’ monthly rent is essentially extra income for you in your new home.
If you rent out your home, would you be the direct landlord or would you hire a property manager?
If you are moving far away, it is wise to hire a reliable property manager to deal with the issues, and you can earn extra income without having to constantly worry about what your tenants are doing. If you are moving within a reasonable distance of your property and want to be the landlord, you will spend a lot more time and energy dealing with tenants and maintaining the property, but you will save some money by not paying property management fees. However, the industry standard for property managers is around 10% of gross rent, which in the long run may be well worth it for all of their services and peace of mind.
Is the house tenant-ready?
A tenant-ready home is one that is up to code, clean, ready for a tenant to move in and live comfortably. Do you need to make any changes or upgrades before renting the place out? You must take into consideration both structural and aesthetic features.
Are you open to allowing tenants into your home?
Allowing tenants to stay in your home without your direct supervision can be risky. Renters often ignore small problems that could lead to huge repairs, things that you yourself would address in a timely manner but that they might not even think to report. Chances that you get tenants who are seriously destructive are slim, but it is definitely possible.
Obviously there are a lot of factors to consider when moving away from your property. There are calculators (link) to help you weigh the financial aspects of your decision, but ultimately it is a very personal choice. Each situation is different; in some areas the difference in cost/profit is significant, where in others the answer is not so clear. Ultimately, you need to do what is most comfortable for you.
Calculator http://www.allpropertymanagement.com/resources/rent-or-sell.html
