by Amy Lillard
In the midst of one of the most uncertain real estate markets in history, it's more important than ever to be informed. In a continuing series, we take a look at some of the most pressing questions about mortgages, refinancing, home equity, and other real estate options available to you.
(9/25/2012) Homeowners looking to move have an option before them: Sell the property, or offer it as a rental?
The answer to this question may change depending on the economic climate, comfort with risk, and personal financial situation. But there are key benefits and drawbacks to each.
In today's housing market, selling a property for an acceptable price without losing significant value can prove difficult. Selling can be a good option if homeowners have significant equity, no matter what price the home sells for. The ultimate decision should be based on local home values and individual financial situations.
Overall, renting a property can offer an escape to another home no matter the market, and potentially provide some additional cash flow.
Renting offers homeowners the ability to keep the property and continue to build equity, while bringing in income to either break even or make a profit. Today, this is an increasingly attractive option as rentals are increasingly hot in many markets.
But renting out a property does come with challenges. One of the most prominent is shifting the mindset from owner to investor and landlord. Tenants will rely upon homeowners as landlord, who are responsible for fixing all minor and major issues. This represents additional cost, but also the time required to be on 24-hour service call. Some property owners opt to hire a property manager to handle these calls, which may be an additional expense.
Additionally, tenants may inadvertently (or in the worst case, intentionally) damage property, or simply stop paying rent. This can cause home value to decline further and extreme headaches. In some cases legal action may be necessary, representing a time and cost expense.
In today's increasingly competitive rental environment, it can also be difficult to keep property rented at all times. Plus, acceptable rental prices for the market may or may not be enough to cover a homeowner's mortgage and associated fees. No matter what, homeowners will need to make up any income shortfalls and continue to stay current on principal and interest on their mortgage, property taxes, homeowners insurance, homeowners association fees, and maintenance and repair costs..
Finally, renting a property is associated with significant tax advantages and disadvantages. From depreciation costs, to tax deductions, to capital gains, homeowners looking to rent their property will need a comprehensive understanding of the financial implications. Enlisting a team of financial and legal professionals may be an added but justifiable expense.
For Additional Reading:
Capitalization Rate: Rent or Sell House
Should you Rent Out Your House or Sell It?
Selling vs. Renting:
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