Depending on where you live, you may find yourself in a difficult housing market – interest rates fluctuate, and the extreme seller’s market of the covid era seems to have passed.
So if you’re thinking about moving — because of a new job in a new city, a growing family, or just new wants or needs for your living space — you may not know what to do with your current home.
Are you going to sell your house or rent out your home? What are the pros and cons of selling your house outright, versus holding onto your current property until the market improves? What are the costs and benefits of becoming a landlord?
Because real estate can be both complicated and expensive, we know there is no simple answer to this question. That̵7;s why we asked three property experts for their advice:
- Nicole Beauchamp, Senior Global Real Estate Advisor and Licensed Associate Real Estate Broker at Engel & Völkers
- Stacy Brown, director of technical education at Real Property Management, a neighboring company
- Adie Kriegstein, licensed real estate agent and founder of the NYC Experience Team at Compass
Here are the three questions they suggest asking before you decide to sell or rent your current home, and how you can use your answers to make an informed decision.
What does the housing market look like in your area?
What is the first step in deciding whether to sell your house or rent it out? Review of the local housing market – both for sale and rental.
“I would research what the rental market is like and what the estimated rent might be,” advises Beauchamp. “Weigh all the costs and expenses of keeping your house as an investment against the costs of selling. A lot depends on the area you live in.”
Kriegstein agrees. “If you’re in a buyer’s market, it’s going to be difficult for sellers to not only move their property but also to make money on the sale,” she explains. “It’s also important to research the current trends in the rental market in one’s area, as they can also vary – and you don’t want the home sitting vacant on the market because you’d be carrying it financially.”
“It’s very important to consider the potential vacancy periods,” says Beauchamp, “and plan for the worst-case scenario.”
Again, the market in your area can set you up for a best case scenario. “Homes close to an area, whether it’s schools, shopping or experiences, can be excellent rental properties,” says Brown. “As mortgage rates continue to be high across much of the US, first-time buyers may be looking for a rental property rather than buying a home, and if they can find a property that checks all the boxes, that’s a bonus.”
Where do you plan to live next – and will you buy or rent?
Whether you’re selling your house or renting it out, you’re going to need somewhere to live – and your next home can play an important role in your decision to sell or rent out your current property.
“If you’re renting out your previous home and living in another home you’ve purchased,” advises Brown, “ask yourself what you can do if your tenant moves or stops paying rent. Can you cover two monthly mortgage payments as well as the cost of the both properties?”
Beauchamp agrees. “Consider the costs of continuing to carry your current home, especially if you’re going to live far away from the property.” The further you live from a house you rent out, the more work you have to do to keep up with the needs and concerns of your tenants – whether you cover the distance yourself or hire a property manager to help you. In addition to maintenance costs, property taxes are also a consideration.
If your current house is paid off in full, the decision becomes easier. “If the home you’re renting is paid off, this can be handled more easily because there’s no monthly house payment, and if tenant issues arise, they’re easier to deal with,” says Brown. “Real estate companies can help ensure that the property is ready to rent, the paperwork is completed correctly, and strong rent-ready candidates are on their way to moving into the rental property.”
On the other hand, people who decide to rent a new home while renting out their old one can end up in a kind of housing limbo.
“Rental properties are revenue drivers,” Brown explains—and while your tenants may drive some revenue in your direction, you’ll also be generating revenue for the person who owns the property you’re renting. If the market makes it difficult for you to buy a new home and you end up renting longer than you anticipated, much of what you earn as a landlord could go straight into someone else’s pocket.
What are your long-term goals?
What is the last question you should ask yourself before you decide to sell your home or rent it out? If the short-term plan fits your long-term goals.
“Whether it’s a good idea to rent out your current home depends on your individual circumstances and financial goals,” explains Kriegstein. – Renting can be a good idea if the rental income covers your expenses and the market conditions are favorable. But one must also consider potential maintenance repairs, property management costs and market rent regulations as they can vary from state to state.
Beauchamp agrees. “When considering the role real estate plays in creating wealth, I would always advise clients to consider the long-term horizon, not just the short-term change.” If you want to keep multiple properties as a way to generate generational wealth, for example, renting out a house you’re not currently using can give you the opportunity to retain equity and build long-term stability.
On the other hand, becoming a landlord takes time – and maintaining a rental property can be more expensive than people realize. If you cannot afford the costs of renting out your current home, it may be better to sell the property and build wealth in other ways.
“Ultimately, renting out a property will depend on the current market and the convenience of the current homeowners stepping into the role of landlord,” says Brown. “Consulting a property management company with wealth management experience can help homeowners understand the current trends in the market and the potential growth of the property they want to rent.”