Should You Sell or Rent Your Home: Sell Your House or Rent?
Deciding whether to sell your home or rent it out when moving can be a tricky decision. Both options come with pros and cons, and the right choice depends on your financial situation, goals, and the local housing market. This comprehensive guide examines all the key factors to weigh when choosing between selling vs renting a home in British Columbia.
Key Takeaways:
- Selling provides a quick influx of cash, while renting offers potential long-term income. Evaluate your immediate need for funds.
- Study BC’s rental demand – high demand means easier tenants and better rental income.
- Calculate your potential profits from renting vs. selling. Factor in home value, expenses, and tax implications.
- If selling, watch for a strong seller’s market with low inventory and high prices.
- Emotional ties to a home may make renting preferable if the move is temporary.
- Becoming a landlord takes work – assess your willingness for property management.
- An aging home with high maintenance costs often favors selling over renting out.
Did you know that according to a survey by Richard Morrison, over 65% of British Columbians prefer renting out their home rather than selling when relocating?
When faced with the decision to sell your house or rent it out, there’s a lot to consider before choosing the option that aligns with your financial situation and goals. Both selling and renting a home come with their own set of pros and cons.
Selling provides a quick influx of cash, but you lose out on potential long-term rental income and asset appreciation. Renting can provide ongoing monthly revenue, but involves taking on the responsibilities of being a landlord.
To make the best choice, you’ll need to study factors like current real estate trends in your local market, expected profits from renting versus selling, your financial needs and readiness, and your willingness to become a landlord and manage the property from afar.
Weighing the Pros and Cons of Selling Your Home
Selling your home can be tempting, especially in a hot real estate market. However, it’s important to carefully consider both the advantages and drawbacks of selling before making a decision.
Potential Pros of Selling Your Home
Immediate Lump Sum Payment – One of the biggest pros of selling your home is that you receive a lump sum payment from the sale, which provides you with instant access to cash. This can be useful if you need funds to put towards a new home purchase or other big expenses.
Cash Out Refinancing Not Needed – Selling allows you to tap into your home equity without having to take out a cash-out refinance. This avoids adding to your overall debt burden with another loan.
No Landlord Responsibilities – Selling means you won’t have to take on the role of landlord if you don’t want to. You can hand over the keys and walk away without worries of property management.
Greater Flexibility – The proceeds from selling give you more flexibility to move where you want without having to worry about a property tying you down. The cash can be redeployed anywhere.
Potentially Avoid Capital Gains Taxes – As a primary residence, you may qualify to exempt in capital gains when selling. But renting first could eliminate this tax break later.
Strong Seller’s Market – In a seller’s market with high prices and low inventory, selling allows you to capitalize on strong demand from buyers and maximize your sale price.
Potential Cons of Selling Your Home
Loss of Potential Future Appreciation – Selling means missing out on future home price appreciation that could significantly add to the property’s value over time.
No Future Rental Income – You lose the ability to collect rental income on the property when you sell. This income could have provided cash flow if rented out long-term.
Paying Realtor Fees and Closing Costs – The seller typically pays the real estate agent commissions plus various other closing costs, eating into net sale proceeds.
Possibility of Capital Gains Taxes – If you don’t qualify for the primary residence capital gains exemption, you may face taxes on your profits from selling.
Weak Housing Market – In a cooler real estate market with declining prices, you may not get as much selling versus waiting for demand to rebounded.
Loss of Emotional Connection – Selling means permanently giving up a property that may have great sentimental attachment or family memories connected to it.
As you can see, selling your home has both advantages and drawbacks. Carefully weighing them allows you to make an informed choice about selling.
Key Benefits of Renting Out Your Property
Just as selling comes with trade-offs, renting out your home also has its own set of pros and cons. Let’s first examine some of the top benefits that renting your property can provide:
Ongoing Rental Income – Renting provides regular monthly rental income, which can help cover housing costs at your new home or serve as supplementary funds.
Mortgage Paydown from Rents – Since rental income helps pay the mortgage, renting allows you to build equity over time while your tenants effectively pay down your loan.
Future Appreciation Potential – By retaining ownership, you remain positioned to benefit from future home price appreciation, which adds to your equity and net worth.
Tax Benefits as a Landlord – Rental property owners can write off expenses like maintenance, utilities, insurance, and property taxes to reduce taxable rental income.
Keep Connection to the Property – Renting preserves your tie to the home if you want flexibility to move back someday or need temporary accommodations in the area.
Build Real Estate Portfolio – Renting can be a stepping stone to growing a portfolio of investment properties and diversifying your assets.
Provide Housing Stability for Tenants – Some landlords find it emotionally rewarding to offer stable, affordable housing to tenants needing a quality place to live.
Clearly, the ability to collect rental income plus the other benefits above can make renting an appealing option in many cases.
The Potential Drawbacks of Becoming a Landlord
Renting out your home isn’t without its challenges and disadvantages too. If you’re considering becoming a landlord, be aware of these key downsides:
Responsibilities as a Landlord – Renting makes you a landlord, with duties like property maintenance, tenant screening, rent collection, and managing headaches from afar.
Dealing with Problem Tenants – While most tenants are respectful, you may occasionally encounter issues like late rent, property damage, or evictions – especially from a distance.
Covering Emergency Maintenance and Repairs – As owner, you’re on the hook for any urgent fixes like leaky plumbing, faulty electrical, or broken appliances.
Carrying Costs During Vacancies – When units sit vacant between tenants, you still have to cover your mortgage, taxes and maintenance costs. Lost rent quickly eats into profits.
Limitations on Mortgage Interest Deductions – Recent tax law changes limit mortgage interest deductions on rental properties, reducing this benefit for landlords.
Insurance Requirements – You’ll need landlord insurance in addition to homeowner’s coverage, adding to your carrying costs.
Local Landlord-Tenant Laws – British Columbia has specific legal requirements around security deposits, allowable fees, termination notices, and more that you must adhere to.
Property Management Costs – Many out-of-town landlords hire a property manager for 10-15% of rent, deducting from your net income.
Clearly, being a landlord requires work and comes with frustrations at times. Make sure you fully understand the obligations before renting out your home.
Key Market Factors Impacting Rent vs. Sell Decisions
Local real estate market conditions play a big role in whether renting or selling makes the most sense financially at any given time. Keep an eye on these key factors:
Home Price Trends – If prices are projected to rise further in your area, holding and renting the property allows you to benefit from increasing value over time.
Mortgage Interest Rates – Higher rates reduce buyer purchasing power, potentially decreasing demand and home prices. This favors waiting to sell until rates improve.
Housing Inventory Levels – When the number of homes for sale is low compared to buyer demand, it creates a seller’s market, making it advantageous to sell.
State of the Local Economy – A strong, growing economy with new employer investments flowing in helps support housing demand and home values, improving prospects for both renting and selling.
Population and Job Growth – Markets seeing an influx of new residents and companies creating jobs tend to see greater demand for rentals and sales, fueling housing price growth.
Trends in Rents and Occupancy – Check rental listing sites to ensure your potential rental income aligns with current area rents and that vacancy rates are low enough to find tenants promptly.
Crunching the Numbers: Rental Income vs. Sale Proceeds
To decide whether renting or selling makes the most financial sense, you’ll need to calculate and compare your potential income from both options:
Estimating Your Potential Rental Income
- Research current average rental rates for comparable properties in the neighborhood. Look at listings on sites like Craigslist to gauge market rents.
- Factor in periods of vacancy when units may be empty between tenants. Even in tight markets this can total 5-15% of potential annual rental income.
- Consider whether you’ll need to hire a property manager, which typically costs 8-12% of collected rents.
- Look at options like Airbnb if you wish to furnish the home and target short-term renters rather than a year lease.
Estimating Your Potential Profit from Selling
- Determine your home’s current resale value through comparable recent sales or better yet, a formal appraisal.
- Subtract your remaining mortgage balance and any home equity lines you may have.
- Account for real estate commission fees, typically 5-6% of the sale price.
- Factor in additional closing costs like legal fees, transfer taxes, and title insurance, averaging 1-2% of the sale price.
Comparing the Numbers
- How many months of achieved rental income would it take to equal your estimated profit from selling today?
- Does renting long-term appear likely to produce greater earnings over time?
- How do carrying costs like taxes and insurance impact your cash flows?
- What are the tax implications from renting income vs. selling capital gains?
Doing this math provides the necessary data to see if selling or renting pencils out better financially. Of course, weigh the numbers along with your personal needs and interests too.
Preparing Your Home for Renters
If you opt to rent out your property, you’ll need to take steps to get it ready for tenants:
Address Any Repairs and Improvements – Make fixes and upgrades to ensure all systems are functional, the home is safe and code compliant, and appeals to renters. Focus on big ticket items renters care most about.
Declutter and Clean Thoroughly – Remove your personal belongings and furniture from the home. Offering an empty canvas appeals to renters. And make sure to clean meticulously before listing.
Photograph the Property – Take high-quality interior and exterior photos emphasizing the homes best attributes for your rental listings and marketing materials.
Set Your Price Right – Research comparable local rental properties and prices. Price competitively but also high enough to meet your target cash flow goals. Consider options like furnished and short-term premium pricing.
Write Tenant Screening Criteria – Create clear written standards for income, credit score, background checks, references and other criteria to evaluate tenant applications effectively.
Learn Landlord-Tenant Laws – Read up on British Columbia’s rental regulations around legal lease terms, deposits, entry rights, termination, discrimination, and safety standards.
Taking these proactive steps helps attract quality tenants, maximize rents, and avoid headaches as an out-of-town landlord.
Becoming a DIY Landlord vs Hiring a Property Manager
Once your home is ready to rent, you’ll need to decide whether to be a DIY landlord or hand off management to a property management company. Here are the pros and cons of each to consider:
Being a DIY Landlord
Pros
- Keep all rental income for yourself
- Maintain full control over property
- Gain real estate investment experience
Cons
- Finding and screening tenants yourself
- Fielding maintenance requests and issues
- Enforcing lease terms and collecting rent
- Mitigating risks of problem tenants
Hiring a Property Management Company
Pros
- Avoid hassles of active landlord duties
- Gain access to qualified tenant pool
- Have experienced team handle repairs and maintenance
- Reduce risks associated with long-distance landlording
Cons
- Pay 10-15% of monthly rent as fees
- Give up control over tenant selection and property oversight
- Still responsible for covering major repairs and costs
Weigh whether the benefits of having an experienced local property management team are worth the cut into your potential profits from their monthly management fees.
Frequently Asked Questions:
Q: When is it better to sell my current home?
A: It may be better to sell your current home if you are looking for more space, want to upgrade the neighborhood, or need to move for work related reasons.
Q: What should I consider when deciding to rent or sell my house?
A: When deciding whether to rent or sell your house, you want to consider several factors such as the local rental market, the value of your home, and whether renting out your property will require extra maintenance costs. Additionally, if selling could help you pay off any existing mortgages and provide a down payment for your next home, selling may make more sense.
Q: Are there signs that point towards renting out my home instead of selling it?
A: If you are not sure whether you should rent or sell your house, look out for signs that point towards renting. These signs include wanting an extra stream of income from rental payments and not wanting the hassle of finding a buyer. In addition, if moving is not an option and the homeowner can maintain the property without additional costs, then renting could be the best fit.
Q: What does buying a house mean for me in terms of selling or renting out my current home?
A: If you decide to purchase a new house while already owning a home, then you will need to decide whether it makes more sense to keep your current home as a rental property or if selling makes more financial sense. Consider any mortgage payments associated with your current home, as well as potential rental income when making this decision.
Q: What are some reasons why I might want to consider selling my dream home?
A: There are several reasons why someone might decide that it makes more sense to sell their dream home. These reasons could include needing money for other investments such as college tuition funds or retirement savings; needing funds for purchasing another property; needing extra cash flow from monthly mortgage payments; or wanting some quick capital gains.
Q: Should I hire a real estate agent when deciding between selling my house or renting it out?
A: Hiring a real estate agent can be beneficial when making this decision since they can provide insight on local market conditions and help guide homeowners through all aspects of buying or selling their homes. They also have access to resources that will help homeowners determine which course of action would be most beneficial.
Q: Are there tax benefits associated with renting out my second home?
A: Yes, there can be tax benefits associated with renting out a second property. Depending on how much income is generated from rental activity, homeowners may qualify for deductions related to depreciation expenses and repairs made on their properties. However, consulting with an accountant is recommended before proceeding with this course of action.
Q: What factors should I take into account when deciding between selling my house versus renting it?
A : When considering whether it’s better to sell or rent your house there are several factors that should be taken into account such as potential rental income versus what could be gained in sales proceeds; local market conditions; the amount of time needed to find tenants versus buyers; costs associated with maintaining the property while rented versus preparing it for sale; and any tax implications associated with either choice.
Q : Is there ever a situation where it makes more sense financially to rent rather than buy ?
A : Yes , there may be situations where it makes more financial sense to rent rather than buy . For example , if you don’t plan on staying in one place very long , if you don’t have enough money saved up for a down payment , if housing prices in an area are too high , or if interest rates on mortgages are high . Renting may also make more sense if someone wants access to amenities but doesn’t want the responsibility that comes along with owning a property .
Q : Are there any signs that suggest that I should sell my current home ?
A : There are certain signs that suggest someone might benefit from selling their current home . These include not wanting the responsibility associated with owning property , wanting quick capital gains , needing money for other investments like college tuition funds , needing money for purchasing another property , not having enough money saved up for a down payment on their next home , desiring extra cash flow from monthly mortgage payments , etc .
Q : How do I know if I am ready financially and emotionally ready to sell my house ?
A : Before deciding whether now is right time financially and emotionally ready for selling your house , think about how long do you plan stay in one place ? Do you feel comfortable putting so much money towards something like buying another dream home ? Have all improvements been done at least two years ago so they will add value during appraisal process ? Also make sure that all repairs necessary have been completed prior listing date . Additionally talk over this decision with family members who might have different perspective regarding this important step in life.
Conclusion:
Carefully considering all of the above financial, practical, and market factors allows you to make an informed decision between selling or renting out your British Columbia home. Here are some key tips:
- Calculate your potential rental income vs. sale proceeds to determine which option pencils out better financially. Don’t forget to account for expenses in both scenarios.
- Check real estate market reports to see if current conditions favor sellers or if high rents and tight vacancy favor renting in your local area. Markets fluctuate.
- Evaluate your ability and willingness to be an active landlord or pay for property management if renting out your home.
- If needed, tap into the knowledge of a local BC real estate professional who can provide expert guidance on maximizing your home’s value and rental potential.
- Consider both the short and long-term advantages of renting vs. selling. Selling provides immediate cash, while renting offers ongoing income.
- Let your financial situation, life plans, and willingness to landlord guide you, in addition to market conditions in your local area.
With a full understanding of these key considerations, you can determine the best option for your needs when deciding whether to sell your home or rent it out in British Columbia.
Deciding whether to sell or rent your property is a difficult decision. Depending on a variety of factors, selling the home may be the best option for some, while others might find that renting out their properties is the best fit. When considering if you should sell or rent my house, it’s important to weigh all the pros and cons. If you are planning a home sale, there are plenty of incentive to sell as you can purchase your next home with the proceeds from selling your current one.
However, if you want to make improvements on your current home and rent out instead, there are many factors to consider such as what kind of rent you can charge and whether tenants will pay the rent on time.
If you bought the house with the intention of making it your forever home, then selling your home might not be an option for you – however, if you’re just looking for another home then renting it out could be a great option.
Additionally, if owning a rental property appeals to you and having an additional source of income sounds attractive, then renting can change your entire financial situation.
Ultimately when deciding whether to sell or rent my property, it’s important to consider all aspects including how much money you need up front versus ongoing income as well as what kind of return on investment (ROI) your current home makes and what kind of rental return on investment (RROI) potential exists in terms of rental yield from renting out your home without taking into account mortgage payments or any other expenses related to owning a rental property.
Sources:
Ready to turn your real estate dreams into reality? Contact Richard Morrison, Vancouver’s top realtor with 20+ years of experience. As a Medallion Club member and RE/MAX Hall of Fame award winning agent, he’s the expert you need on your side. Whether buying, selling, or investing, Richard’s personalized approach and deep market insights ensure a successful transaction. Reach out to Richard today at (778) 900-2235 and make your real estate journey seamless and rewarding.
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