Are you looking to move from your current home? Not sure what to do with the property? You can opt to sell or rent out the property. While selling allows you to dispose of the property completely, renting might be more lucrative.
It is good to ask whether renting your property is worth it. Here are some factors to check on before deciding to rent or sell your property.
1. Cost Of Renting
Before renting out property, there are activities that go into the preparation to make it ready for the rental market. It includes painting the house to make it look presentable and do away with chipped and worn out paint. Another activity is cleaning especially after a mess such as moving out.
All these activities add to the expenses when outside help is contracted to carry out the work. Other expenses that may present themselves include advertising, general maintenance, and repair. However, it is important not to overdo the preparation to minimize the costs. Determine the expenses that the property will incur every month even after getting a tenant such as tax, insurance, mortgage and any other fees.
The next question to ask after determining the costs is profitability. Will the property generate positive cash flow after deducting the expenses? If the answer is yes, renting out the property is worth it and an option to explore.
Compare the amount you would get to the amount of profit if you opt to sell. Is the return on investment higher? These questions will help determine whether it is better to wait before selling or renting. The calculations require basic mathematics. Moreover, there are agents who deal with real estate business available to advise accordingly if the process becomes overwhelming.
3. Tax Implications
Whether selling or renting, there are tax implications on the property. One is required to pay tax on rental income at the ordinary tax rate. The advantage comes in where it is allowed to write off any costs associated with renting the property. In addition, you can claim a deduction for expenses on depreciation.
4. Handling Tenants
Many make renting sound rosy and lucrative. However, being a landlord and handling tenants is not always an easy task. You have to deal with late payments, constant repairs, and complaints. In most cases, tenants don’t carefully handle property leading to depreciation. If you’re not ready to handle the drama that comes with being a landlord, you should not consider renting out.
5. Future Outlook
What is the condition of the property? Where is it located? Will the property increase or decrease in value? Compare past trends to determine whether you should rent out the property or sell. If you’re looking into buying a vacation property and the price is likely to go up, it is advisable to hold off the sale and rent.
The question of whether renting is worth it is a critical one that needs much consideration. Factors to consider include tax implications, handling tenants, profitability and the cost of renting.