When it’s time to move on from your current home, you have two options. You can sell your house and immediately capitalize on the equity you’ve built. This option allows you to cut ties with the house and move on with your life completely.
Alternatively, consider renting out a home. Instead of making a lot of money upfront, you could establish a recurring source of passive income. Of course, this also means taking on the roles and responsibilities of a landlord.
Which option is right for you?
If you’re asking, “Should I Sell my house or rent it out?” this article is for you. Keep reading as we dissect the topic to uncover the pros and cons of each opportunity.
The Benefits of Selling a Home
Most people who decide to move to a new home sell their current house first. This is the most common option because it is the simplest option. However, there are also some appealing benefits to selling your home, rather than renting it out.
Cash In On Equity
If you’re wondering, “Should I sell my house or rent it out?” the answer might depend on the amount of equity you have in the home. For example, let’s say you’ve paid your mortgage down to $100,000 and the home is worth $275,000.
That’s $175,000 in equity you can cash in on. The question is, what will you do with that money?
Most homeowners put positive equity toward their new home. A down payment of this size will make you eligible for almost any home you want (depending on your credit score).
Of course, you can also use this equity to pay off debt, start a business, etc. When you sell your house, the equity you’ve invested is yours for the taking.
Become Eligible for a New Home Loan
For some people, the choice to rent out a home isn’t an option. At least, it isn’t an option if they plan on buying a new house.
A 2022 study shows that 64% of Americans are living paycheck to paycheck. This way of living doesn’t exactly build excellent credit. People in these circumstances will have a difficult time qualifying for a second mortgage.
In this case, the only way to get approved for a new house is to sell their current one. If you can get approved for a second mortgage, you must identify what that will do to your credit score. For example, if you have two mortgages, how will that affect your eligibility for personal loans, auto loans, credit cards, business loans, and other forms of credit?
Leave the Past Behind
Finally, if you’re asking “Should I sell my house or rent it out?” consider how much energy you’re willing to invest.
Renting out a home takes a lot of hard work. It’s not easy being a landlord and dealing with tenants.
Selling your home will allow you to cut ties completely with the property. You can walk away with no further obligations.
This can be especially appealing if you have bad memories associated with the home. Maybe the best option for you is to leave the past behind and not look back.
The Benefits of Renting Out a Home
Now let’s talk about why renting out a home can be a good decision. This is a less common choice because it takes more work and requires more financial security. If you’re wondering, Should I sell my first house or rent it out?” here are some reasons you should hold onto it.
Avoid Expensive Home Selling Fees
Selling a house is much more expensive than most people think. Most realtors charge a 3% commission fee to help homeowners sell their homes. For reference, let’s return to the example above using a $275,000 home.
Your realtor will get a cut of $8,250 of your earnings. However, sellers often pay both realtor fees, which would increase your price to $16,500.
You’ll also have to pay for a home inspection and appraisal. Based on the results of these services, you might decide to complete some renovations and repairs. The average homeowner dumps $21K into this process.
Finally, home sellers typically cover all of the closing costs. This is another 3% of your home’s sale price. If you’re not keeping up with the math, selling a $275,000 home in this scenario will cost you close to $50,000.
Hold Onto a Valuable Asset
Real estate is incredibly valuable. It is one of the few investments that are almost sure to increase in value over time. If you can afford to hold onto the house, why would you want to get rid of this asset?
If you maintain the property over the years, you could end up selling it for tens of thousands of dollars more than it’s worth now. And in the meantime, you’ll be collecting rent checks from tenants.
This can be used to continue paying off the mortgage. If the mortgage is already paid off, it’s money that can go into savings or applied toward other investments.
Develop a Reliable Source of Passive Income
Finally, if you’re asking, “Should I sell my house or rent it out?” consider the opportunity of earning a passive income. This is a concept lost on most Americans. Why spend hours at a job when your assets can make money for you?
Of course, one rental property won’t be enough to replace your income. However, holding onto a home and turning it into a rental property provides you the opportunity for more real estate investments in the future.
Eventually, you can earn your entire living through rental properties. The best part is that you can hire property managers to help you manage investment properties.
Property management companies can handle every aspect of your rental so you can take a hands-off approach. This can be especially helpful for landlords who are renting out a second home or those that have other jobs.
Are You Wondering, “Should I Sell My House or Rent It Out?”
Clearly, this is not a decision that should be made lightly. There are obvious pros and cons to each option. If after reading this you’re still asking, “Should I sell my house or rent it out?” consider your finances and your professional goals.
And if you’re looking for more real estate tips, investing advice, or homeownership guidance, look no further. Check out some of our other articles before you go to find more helpful information.
