Are you thinking about moving or upgrading to a new house? If yes, then you might be confused whether you should put up your house on sale or lease it for good.But before we dive into facts, comparisons, analytics, or some reasons, let me preface this entire post by stating that it truly relies on YOU and YOUR PREFERENCES! Regardless of what you read in this blog post or online at day's end, it will be you who need to be comfortable while making the final decision.
Your scenario is quite similar to penny-stock where you can invest and make a killing in the market. Moreover, only you will be responsible for your financial decisions and the end product because the stock market often requires a higher degree of risk. That’s why you must be “A-OK” with your budgetary choices as you can lose your shirt if a bet goes wrong!
Below we have explained some factors that will help you decide whether to lease your house or sell it.
Will this property bring money to the table?
If you are thinking about renting out your home, then you need to ask yourself “will this property generate positive cash flow or will suck you dry? To figure that out, add up all the expenditures (mortgage expense, taxes, insurance, repairs, and other costs) related to the property and then subtract them from the rental income that you are expected to make.
On the off chance you are not good with sums or find this calculation complex, we suggest you use an automated invention “rental calculator” or contact a professional and reliable seller’s agent. The realtor will help you create a comparative market analysis, evaluate the return on investment (ROI), and determine whether the property will produce a monthly profit or loss.
Cash flow vs. payout
The next big thing you need to clarify is “which one do you prefer: cash flow or payout?”
If you lease your home, chances are your monthly rental income will be higher than the mortgage expense, which will reinforce you with more wealth in upcoming five years. But at the same time, you might face the higher risk of a housing bubble or financial strain as market rents fluctuate. In addition to that, your rental property may even remain vacant for several months or generate less income than you anticipated.
On the other hand, selling out your home means you are eligible to receive only “one-time payout”.
Sales price and capital gains tax
Are you not satisfied with your current home value? If yes, then leasing your property is the best option. You can earn some extra bills while waiting for real estate market to recuperate from the bust. Unfortunately, this strategy can boomerang because after renting out your house for more than 3 years, you will not be able to claim it as your primary residence.
It also means if you decide to sell the property (which is not your primary house anymore) after three years, you are liable to pay capital gains tax (CGT) on any profit. The rate can range from 0 to 20 percent, depending on your tax bracket.
Are you perfectly ready to become a landlord?
Landlording is a complex business, and being a lessor is often stressful and time-consuming. Not only will you be in the charge of advertising, showing potential tenants around the property, and running countless background checks but you will also need to handle maintenance and repairs, field telephone calls, and deal with emergency situations that your tenants might face.
Is ROI more than investment costs?
By using the key performance indicator “ROI”, you can evaluate the profitability of an expenditure and determine the financial gain & efficiency of an investment. You need to consider if you put your house up for sale today, then with how much profit you can walk away, and is that amount worth trading? Also, make sure to assess the true profit after deducting seller’s agent fees, capital gains, and other sales expenses. In the event that you think the gain would be pretty much nothing, it might be favorable to clutch the property and sit tight until the real-estate market recovers.
For example, assume you purchase a house for $200,000 and sell it later for $220,000. In this scenario, your return on investment is 10 percent. This percentage value is the increment gain that you make on the total investment. If you only put 10 percent down on the property for realtor fees and other closing costs, then your Cash-on-Cash (COC) return is 100 percent.
Conversely, let’s say you earn a gross profit of $5000 annually in cash flow by leasing your home, which means your ROI is 2.5 percent per year.
In any case, before pulling the trigger and making the final judgment regarding your rental property, you need to research the housing market, consider sales price, capital gains & taxes, analyze your cash flow, and many more factors.
If you are looking for a prominent seller agent in Rancho Cucamonga, CA who can help you price the home, prepare & stage the property, market your abode to potential buyers, and close the deal, then feel free to call us on (909) 377-3137 or drop us an email at firstname.lastname@example.org.