Buy and Rent?

When you’re ready to move, figuring out what to do with your house is a big decision. It’s not unusual for sellers to tell us that they’re considering renting their current home as an investment or because they can’t get the price they want for it.

Recent data from Zillow shows about two-thirds (66%) of sellers thought about renting their home, with nearly a third (28%) taking that possibility seriously. Compared to 2021, when fewer than half (47%) of homeowners considered renting before selling, it’s clear this trend is on the rise. Interest is no doubt increasing because of the high demand for rental property and the mortgage sized rents that landlords can receive.

So, should you sell your house and use the proceeds towards your new home or keep it as a rental and take advantage of the “passive” income? Let’s walk through some important questions to help you determine the right path for your financial and lifestyle goals.  

Is Your House a Good Fit for Renting?

Before you decide what to do, it’s important to think if your house would make a good rental in the first place. For instance, if you’re moving far away, managing ongoing maintenance could become a major hassle. Other factors to consider include if your neighborhood is attractive for rentals — close to schools, highway access, etc. — and if your house needs significant repairs before it’s ready for tenants.

If any of these situations sound familiar, selling might be a more practical choice.

Are You Ready for the Realities of Being a Landlord?

Managing a rental property involves more than collecting monthly rent. It’s a commitment that can be time-consuming and challenging.

For example, you may get maintenance calls at all hours or discover damage that needs to be repaired before a new tenant moves in. There’s also the risk of tenants missing payments or breaking their lease, which can add unexpected stress and financial strain.

As Redfin notes: “Landlords have to fix things like broken pipes, defunct HVAC systems, and structural damage, among other essential repairs. If you don’t have a few thousand dollars on hand to take care of these repairs, you could end up in a bind.”

Do You Understand the Costs?

If you’re considering renting primarily for “passive” income, remember, there are additional costs you should anticipate. As an article from Bankrate outlines some of them:

Mortgage and Property Taxes: You still need to pay these expenses, even if the rent doesn’t cover all of it.

Insurance: Landlord insurance typically costs about 25% more than regular home insurance, and it’s necessary to cover damages and injuries.

Maintenance and Repairs: Plan to spend at least 1% of the home’s value annually, more if the house is older.

Finding a Tenant: This involves advertising costs and potentially paying for background checks.

Vacancies: If the property sits empty between tenants, you’ll lose rental income and need to cover the cost of the mortgage until you find a new tenant.

Management and HOA Fees: A property manager can ease the burden, but typically charges about 10% of the rent. HOA fees are an additional cost too, if applicable.

Bottom Line

To sum it all up, renting your home after you move out is not as easy as it looks. If you’ve decided to move but aren’t sure about what to do with your current house, let’s talk and we can help you review the plusses and minuses.

Mari and Hank

The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. You should always conduct your own research and due diligence before making any investment decision.