Life ebbs and flows, and a result, you may be faced with the decision of either selling your home or renting it out for an extended period of time. Both have their advantages: selling means no further responsibility for the property, and no issues that may arise from being someone’s landlord. Renting, on the other hand, is a great way to create a passive cash flow that can pay off over time, and give you access to tax incentives. Whatever you decide to do, here are the things you should consider before deciding if you should sell or rent your home.
However, managing a rental home while you’re living in a different city can have its challenges. If you plan to manage the property yourself and need to be present to address an issue, you may have to incur the costs of mileage or plane tickets, and possibly hotel expenses that will cut into your rental profits. Being a landlord can also be emotionally draining - you’re responsible for showing your home, running background checks, and fielding calls from prospective tenants. Plus, if you have a personal connection to the property, it can be stressful to rent it out to strangers.
Alternatively, if you hire a management company, they will take care of any day-to-day or emergency situations for you. But hiring one can be costly and eat into any profits you make renting. The quality of management companies varies too, so make sure you do your research and find one that is properly licensed.
Renting out your home can be an attractive option if you are looking to eventually create a passive income stream. If you can rent your house for at least the cost of your monthly mortgage, taxes, and insurance payments, you can potentially make a profit every month while your tenants effectively pay for your mortgage. Once the mortgage has been paid off, you can choose to sell the house and convert your equity into a lump sum. Alternatively, you can keep your home as a rental property and collect income well into your retirement years.
However, it may be better to sell your home if you are looking to purchase another and want a bigger down payment. In Canada, you have to pay mortgage default insurance (also known as CMHC insurance) if your down payment is less than 20% of the cost of your new home. So if you don’t have enough liquid cash for a 20% down payment, make sure you do the math to see if renting out your current home is still worth it while paying CMHC on a second property.
Your Home’s Condition
Renters, more so than buyers, are typically more willing to overlook outdated fixtures, odd paint colours, and scuffed flooring because they know they won’t be there forever. Even minor improvements can add up to thousands of dollars, so if you don’t have the money to invest in renovations, renting may be the better choice. However, if you have the means to make improvements that not only make your home appealing to buyers but also increase the home’s value, selling is likely the better option.
The real estate market will fluctuate. Sometimes very quickly, even over a few years. While no one can predict what the market will do, it’s important to consider what the market is doing when you decide to buy. For example, if the market is flooded you won’t get top dollar for your home, there is potential that if you wait you could fair better, so renting it out until then may be for you.
The real estate market is dependent on many economic and political factors, whether you decide to sell or rent, make sure it feels right for you both personally and financially.