There are many reasons to move house, but that creates a conundrum that homeowners should ask themselves: Should I sell my house or rent it out?
The 2024 Zillow Consumer Housing Trend Report shows that 66% of homeowners considered renting their properties before ultimately deciding to sell. That’s a 47% increase since 2021 and shows the rental option is increasingly attractive, but most owners opt to sell their house after crunching the numbers.
Before you make any decisions, you need a proper house valuation from a professional estate agent. You also need to know all the costs involved.
The Costs of Becoming a Landlord
The main concern with renting your property out is covering the cost of the mortgage and bills. You will have to account for:
– Mortgage, property taxes, and Homeowners Association fees: Mortgage rates and property taxes still have to be paid.
– Maintenance and Upkeep: The widely quoted “1% rule” states that you should spend 1% of your home’s value on upkeep and maintenance every year.
– Insurance: You’ll need specialist landlord’s insurance, which can cost up to 25% more than standard homeowner’s insurance.
– Property Management: You might find it impossible to manage your property rental for all kinds of reasons. Handing the responsibility to a property manager will make life simpler, but will cost you 10% of the rental income.
– Tenant-Related Expenses: Factor marketing, background checks, missed rental payments, and even legal action to evict a non-paying or destructive tenant. In the long term, you must also plan for vacant periods between tenancies.
The Costs of Selling Your Home
Of course, nothing in life is free, and there are bills that go along with selling your home. They include:
– Estate Agent Commission: The standard commissions you will pay is 2-3% of your home’s sale price to your listing agent and brokers. Other services like Purplebricks in the UK has flat fee services as well.
– Pre-Sale Preparations: One study showed that staged homes can sell 73% faster and for 1-5% more than unstaged homes. Repairs, decoration, deep cleaning, and landscaping could prove a solid investment, not just a cost.
– Closing Costs: In addition to the basic commission, you’ll also have to cover transfer taxes, attorney fees, and title insurance. These costs typically amount to 1-3% of the sale price.
– Mortgage Payoff: An early settlement can result in a prepayment penalty, but this isn’t always the case. Check the terms and conditions of your mortgage agreement to make sure.
What’s the Best Option For You?
You can crunch the numbers all day, but they won’t give you all the answers. The truth is that your circumstances will have as much of an impact as the costs involved.
If you want to buy another property, you’ll need the equity from your current home. Selling might also be the best option if your local market is strong and you also might not want the responsibility of being a landlord. If your property needs substantial repairs or modifications to suit the rental market, it might not be cost-effective anyway.
On the other hand, renting your property out could be the best option if this is a temporary move or if the market in your area is appreciating rapidly. In either case, the high cost of selling and the rapid movement in the market could set you back years and force you into a lesser property in the future. So renting your place out is the clear winner. Just make sure the rental yield will cover your outgoings, with a little spare at the end, and you can make the most of the long-term property price increases.
Even with all the facts, this is not a simple decision, and you should ensure that you have thought this through before committing to either plan of action.
