When it comes to deciding whether you should sell or rent your house, there are some calculations you can do to help decide what makes sense for you.
There are two different scenarios to look at.
Selling your house
The equation for selling your house would include:
- The current appraised value of the home
- The amount left on the mortgage
If you sell the house at the appraised value and pay off the mortgage, the amount left over is equity for you (be sure to consider closing costs and realtor fees too). You can reinvest the balance and use that as a down payment on a new property, if you are buying a new home, or save it toward retirement.
Carrying a mortgage is something we usually recommend, as it is a relatively low cost for borrowed money. Whether you’re looking to downsize your home or just moving locations, having a mortgage provides greater liquidity and flexibility with your money.
If you are not moving far from the home you are selling, you may be in a better position to manage some of the aspects of renting your home. But there are other factors and costs to consider when looking to sell or rent your house.
Renting your house
The equation for renting your home would include:
- Your monthly mortgage payment, plus interest, insurance and taxes
- The amount you receive in rent
If you rent out your home, the difference between what you receive in rent and your mortgage payment would provide you with extra monthly income, in theory. But there are other costs to consider. Will you have to hire a property manager or maintenance person to look after the house? Will you have to pay a realtor to find a tenant every year for you? Will you be paying a mortgage on a new property as well?
The costs vary, but management companies can charge in the neighborhood of 10% of the rental income. Then take into account that there may be months when the property may not be rented if the tenants have moved out. You may have to repaint and refurbish the property between tenants, and replace costly items like dishwashers or carpets before you can rent it out again. There could be unexpected damage to the house, and you need to have enough cash on hand for repairs.
And of course, you would have to pay taxes on that rental income. There may be some tax deductions for owning the property, but you will need to calculate whether that is enough to offset the tax paid.
When you start to add up additional costs, you see it’s not always a simple case of what you can charge in rent versus what your expenses are now. The costs can be quite a bit higher when you’re renting out the property. But you may still be wondering, “Should I sell or rent my house?”
There are always some circumstances in which keeping your house as a rental might make sense. For instance, if your mortgage is paid off, the calculations may work in your favor. But in most cases, we generally recommend selling your house instead of renting it, and investing the proceeds.