The Pros and Cons of Renting Your Home: When to Become a Landlord and When to Sell Your House

Whether you’re moving into your dream home or need to pack up and get out of town fast (hopefully not because you’re running from the law), you have a few options. You can put your place in the hands of an experienced real estate agent or you can find tenants and rent it out.

You could be moving out of an Austin pad with exposed brick next to Hideout coffeehouse, a mid-century modern in Palm Springs, an iconic San Francisco Victorian, a low ranch style in Phoenix, or a two story with a nice backyard. The style and layout of your home, its location, your personal financial goals, and the heat of the market in your area determine if you should become a landlord or find a real estate agent and sell as fast as you can.

Is It Worth It To Sell Your House?

To figure out which path is best for you, we’ve put together a list of the pros and cons of renting your home and the pros and cons of selling it. First, you’ll need to create a profile for your home.

Step 1: Figure Out How Much Your Home is Worth

Online home value estimate tools can give you a quick and general idea of how much your home is worth. You need to have an approximate value of your home to get a ballpark of how much it might sell for should you choose to go that route.

Step 2: Conduct a Quick Comparative Market Analysis

We created a quick DIY (sounds fun, right?) way to figure out how your house stacks up against other homes in your area. Your comparative market analysis (CMA) takes the square footage, lot size, number of bedrooms and bathrooms, garage space and upgrades of your house into account. Then, you’ll compare these features of your home with those of properties in a 1-3 mile radius that have sold within the past 2-3 months. You can get a list of these properties on a website like RealtyTrac.

To make it easy, all you have to do is create a chart that maps out: the address, the zip code, date sold, sale price, square feet, lot size, number of bedrooms and bathrooms, year built, and cost per square foot.

Your house value will be closest to the homes with the most similar lot size, amenities, and upgrades.

Step 3: Calculate the Profit of Your Home Sale

Selling your house is going to cost you money upfront. To calculate how much you will ultimately walk away with when you sell, you need to:

  • Calculate how much you’ll spend to sell the home (updates, preparation, cleaning, homeowner’s association fees, property taxes, real estate agent commission, transfer taxes, attorney fees)
  • Figure out how much you have yet to pay off on your mortgage
  • Recall how much of a down payment you made when you purchased the property

Add these costs together, then subtract this number from the projected sale price you got from the online home value estimator and the comparative market analysis. If you’ll make money on the sale and the house can sell in the time frame you need it to, then it’s worth putting your place on the market.

In Short, You Should Sell Your House If:

If you can get fair market value for your home, sell in a reasonable amount of time (top real estate agents move houses off the market in about 65 days) and make a profit on the sale, then you should sell your home right now. Look at the state of the market in your area. For the market to be considered healthy, homes should consistently sell for above or at the list price.

If none of these criteria are true, becoming a landlord could be your best option.

pros and cons selling your house fast
Source: (Tom Thain / Unsplash)

How Much Could You Make As a Landlord?

Next you’ll weigh the pros and cons of renting your home based on the money you could make and the costs you’ll incur as a landlord.

Step 1: How Often Would Your Rental Sit Empty?

According to the US Census, the national vacancy rate for rentals in 2016 was 7% but in some areas it can be a lot lower or higher. You can look up the vacancy rate for your area from the past 20 years.

Step 2: How Much Rent Can You Charge?

Check out Zumper’s National Rent Report, Metro Reports and Rent Maps for this month to help you figure out a reasonable rental price for your area and type of home.

Step 3: Consider the Costs Associated With Renting

Renting out your house comes with its own unexpected costs. The normal wear and tear of tenants means you’ll have to pay to fix broken front doors, faulty plumbing, issues with a washer and dryer, and whatever else pops up over the term of their lease. These small maintenance issues can add up, and just like if you were living in the home yourself you may have to address more serious problems like a roof update or foundation fix.

Other costs to consider are: your mortgage payment (obviously), property taxes, the cost of a property management company (if you don’t want to deal directly with tenants), and HOA fees.

Remember that you will get to claim certain tax deductions as a landlord.

Step 4: How Much Will You Make Per Year?

How to find out how much of a profit you are likely to make each year, take the amount you’d make on rent. Then, subtract: expected vacancies, repairs, HOA fees, taxes, and your mortgage payment. You should break even or come out with at least a $1,200 profit for the year for the rental to be worth it.

To get an idea of how much your place might rent for, look at sites like RENTCafé that list local rental market trends. For example, RENTCafé lists the average rent for a D.C. apartment at $1,883. And if you’re an owner in Chicago, you might be able to rent your place for a bit more than $1,200, according to ABODO.

Since your house will appreciate over time, you could consider taking a loss every month with the expectation that your house will sell for more in the long run and cover the money you lost. While this is one strategy, it is risky and based solely on the heat of the market when you do ultimately decide to sell. You should view your home as an investment property: you need to make enough money so that managing a tenant (and all that could go wrong) makes sense for you financially.

Ultimately, It All Depends On The Numbers

After completing all the steps above, look at the numbers and decide which is the right decision for your situation. If your house could sell in your local market at fair market value for a reasonable price, then put your time into finding the perfect real estate agent, preparing your house to sell, and moving into your next place.

You should rent out your house if you can’t get fair market value for your home, you’ll lose money on the house, or you could make money on it by renting or keeping it as an investment property. If you can make money every month or break even and sell for more as the house appreciates, then renting is the right strategy for you.

So, what did you come up with? If you’re looking to sell, HomeLight can match you with a top performing real estate agent in your area. And if renting is for you, try Zumper Pro or PadMapper Post a Pad.