When preparing to move, deciding what to do with your current home can be a major concern. Recently, more homeowners are considering renting out their property instead of selling it.
According to recent data from Zillow, about 66% of sellers considered renting their home before listing it, with 28% seriously exploring the option. This is a significant increase compared to 2021. So, how can you decide whether to sell your home and use the funds to purchase a new one, or rent it out for long-term wealth accumulation? Let's review some important questions to help make a decision that aligns with your financial and lifestyle goals.
1. Is my home suitable for renting?
First, it's essential to assess whether your home is a good fit for rental. For example, if you're moving far away, managing the property might become a significant burden. Other considerations include whether the neighborhood is suitable for renting and whether the house requires repairs before it can be rented out. If these factors are concerns, selling might be a more practical choice.
2. Am I ready to be a landlord?
Being a landlord involves more responsibilities than simply collecting rent. It can be time-consuming and effort-intensive. For instance, you may receive repair requests late at night or discover damage that needs to be addressed before a new tenant moves in. There are also potential issues like tenants being late on rent or violating the lease, which can create unexpected stress and financial strain. Above all, landlords are responsible for essential repairs, such as fixing broken pipes, HVAC systems, or structural issues. If you don't have the funds for these repairs, you could find yourself in a difficult situation.
3. Do you understand the expected costs?
If you're considering renting out your home solely because you think it will generate income, it's important to also account for the additional costs involved. According to an article by Bankrate:
- Mortgage and Property Taxes: Even if the rent doesn't cover these expenses, they still need to be paid.
- Insurance: Landlord insurance is about 25% more expensive than regular homeowners insurance, and it’s necessary to cover damage and liability.
- Maintenance and Repairs: You should plan to spend at least 1% of the home's value annually on maintenance and repairs, with older homes potentially requiring even more.
- Finding Tenants: Costs may include advertising and background check fees.
- Vacancy: If there are periods without tenants, you’ll lose rental income and may need to cover the mortgage on your own until a new tenant is found.
- Management Fees and HOA Costs: Using a property management company can reduce your burden, but they typically charge around 10% of the rental income. HOA fees may also apply.
Conclusion
Ultimately, the decision to sell or rent your home is a personal one. It's important to carefully weigh the pros and cons and seek expert advice to make the best decision based on your individual circumstances.
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