Here are four questions to ask yourself before renting out your house.
A question we sometimes receive from clients ready to make a move is whether they should sell or rent out their house. Some people consider renting it out because they may not have been able to sell, get the price they wanted, or they feel it’s a good investment. Here are four questions to ask yourself before deciding to rent out your house:
1. Do you want to be a landlord? I’m a landlord, and responsibilities come with that. Sometimes tenants don’t pay their rent, repairs will be needed, you may have to evict someone, etc. So first think about whether you’re cut out to be a landlord.
2. Does the property cash flow? If you don’t have cash flow after the rent comes in, it’s not worth holding onto the property if you only break even. Also, even if you have cash flow, you may be better off taking the money and investing it in a duplex, two-family, or multi-family property that would have more cash flow potential than a single-family home. (We can help you with that if you’re interested.) Most single-family houses don’t have as much cash flow because taxes are high in Wisconsin.
3. Will the tenant take as good care of the property as you would? In most cases, the answer is no. So how will you feel when that happens? That was your home. Even if you’re okay with that, there will be infrastructure costs to get the property back to the same condition when they move.
4. Did you know you might have to pay capital gains taxes? Once you turn a house into a rental property, you’re potentially subject to paying capital gains taxes. That means that if you don’t sell the property within two years after you move out, you have to pay as much as a 20% tax on any gains you make from the property. If you made $100,000 on it, you’ll be paying an extra $20,000 to Uncle Sam. In most cases, you’re better off selling your primary residence due to capital gains.
If you have questions about renting out your property or becoming a landlord, give us a call or send an email anytime. We would love to help you.