Here are four questions to ask about whether to sell or rent your house to tenants.
A frequent question we receive when clients are moving to a new home is: “Should I sell or rent out my previous residence?” Some people consider renting it because they couldn’t sell it, couldn’t get the price they wanted, or think it’ll be a good investment. To help you make this decision, there are four questions you need to ask yourself:
1. Do you want to be a landlord? Responsibilities come with this position. Sometimes tenants don’t pay their rent, repairs need to be done, you’re in charge of maintenance, and more.
2. Does the property have cash flow? After the rent comes in, are you earning money or losing it? If you aren’t gaining, (even if you’re breaking even) it’s not worth holding onto the property. If you do have cash flow, it may be better spent by investing it in a duplex, two-family, or multi-family house; these will have more cash flow potential than a single-family property.
3. Will the tenant take good care of it? Will the tenant take as good of care of the house as you would? In most cases, the answer is no. This was your home—how will that make you feel? Even if you’re fine with that, there are going to be costs associated with getting the property back to great condition when you decide to sell.
4. Will you have to pay capital gains tax? Once it turns into a rental property, you’re potentially subject to paying capital gains taxes. If you don’t close on a sale of the property two years after moving out, it’s considered a rental and you have to pay as much as a 20% tax on any gains you made on it. For all the details, check with your accountant.
As you may be able to tell, in most cases you’re better off selling your former primary residence.
If you have further questions about this or any other real estate-related topic, give us a call or send an email. We would love to help you.