Maybe you've just landed a new job in a different city, or have decided to retire someplace you've always wanted to live. Maybe you're just looking for a change of scenery. Whatever the case may be, you're moving! If you're a homeowner, have you decided what you'll do with your current abode? Figuring out whether to sell or rent out your home is certainly a tough decision, especially when you consider the responsibilities that come with being a landlord.
Explore the pros and cons of selling vs. renting. Taking all of the key factors into consideration could help you make the right choice for you and your family.
Pros of Selling Your Home
Are you interested in freeing up cash? When you sell your home, that money is yours to spend however you want. Depending on your situation and top-of-mind money goals, you can use that cash on anything from paying off debt to saving for retirement, contributing to your child's college fund or even buying a new home.
Selling your home will also likely demand less of your time than renting it out. Because you won't be a landlord, you won't have to deal with the time commitments involved in renting out a property. These would have included time spent searching for tenants, reviewing applications, maintaining and repairing the property and various other responsibilities.
Cons of Selling Your Home
Closing costs will eat into the money you make selling your home. While the costs depend on where you live, your lender and the type of property, expect to pay a real estate commission, which is often a small percentage of the cost of the house. Other closing costs include appraisal fees, inspection fees, transfer fees, loan-origination fees and title search fees.
Besides closing costs, you may also have to spend money on home repairs to help increase your property's value, as well as staging to make your home more attractive to prospective buyers.
When asking yourself if you will sell or rent out your house, you'll want to carefully assess such factors as your home's current market value and the costs associated with selling. At the end of the day, you'll want to determine whether you'll be turning a profit on your home, or if it would instead be best to hold on to your property for the time being.
On that note, it's also worth deciding whether you intend on moving permanently, or might return sometime down the line. If it's the latter, buying back into the market in the future might be troublesome, meaning you may want to consider keeping your home and renting it out in the meantime.
Pros of Renting Out Your Home
Renting out your home could help you cover your mortgage. Depending on the remaining balance on your existing mortgage, and how much you're renting out your home for, the rent could cover some or all of your mortgage. Plus, you'll be building equity.
It could even serve as an additional source of monthly income. Once your home is paid off, you can consider the rent you charge as just another form of monthly income. You can use the additional money to help drive your long-term financial goals. Having an extra source of monthly income could also help protect you in the case of a financial emergency, such as a job loss, major car repair or medical emergency.
Cons of Renting Out Your Home
The costs of renting out your home can vary but expect them to include the standard costs of homeownership, such as a mortgage payment, property taxes, mortgage insurance premiums and homeowners insurance. If you own a condo, you'll also need to pay a homeowners association fee.
Other costs include purchasing landlord insurance, which is generally more than homeowners insurance. You'll also need to pay fees to perform rental-history and background checks on potential renters and list your home on rental sites. If you're renting out your home while living in a different city, you may also need to hire a property manager or management company, which could save you some time — though at an additional cost.
Also, have you considered the cost of maintenance and repairs? While the cost of maintenance may vary from one home to the next, it could be helpful to set aside a small percentage of your home's value for the costs of general wear and tear. You'll want to save for unexpected repairs as well. Even if you hire a property management company, there's time and stress involved in being a landlord. Whereas the time involved with selling your home ends after you close, your time commitments when renting it out are ongoing.
Consider Protecting Your Mortgage
Have you decided to hold on to your home? It may be helpful to consider the fact that life insurance could help provide financial protection for those near and dear to you — in addition to the standard homeowners and landlord insurance.
The death benefit from a life insurance policy could be used to pay off the mortgage in the event you pass away. This involves taking out a life insurance policy in the amount that works best for you given your outstanding mortgage and other obligations, which could help provide an additional level of financial protection for your loved ones. A financial representative can help you understand the basics of mortgage protection with life insurance.
When making the big decision of selling vs. renting, you'll want to gauge the pros and cons of both options, and carefully consider your unique situation and current needs to figure out what's right for you.