Bank Deal: Earn 1.00% APY on an FDIC-insured savings account at Barclays Bank.
My job is requiring me to move to a new town. So, my wife and I are faced with what seems to recently be the newest typical American family dilemma. What should we do with the home that we bought almost four years ago? While it can be hard to figure out whether to buy or rent a home in the first place, homeowners can face a similar struggle when it is time to move.
Should you sell your house and possibly take a loss? Or, should you consider becoming a landlord, with all of the potential dangers that also entails? There is not always an easy, cut-and-dried answer to this question. Here are a few things to consider whether to sell or rent out your home.
Why selling may not be a great idea
I happen to live in an area of the country that hasn’t suffered as much as other regions during the housing crisis. While new mortgages may be hard to come by and builders have drastically slowed their new home construction projects, home values in my area of the southeast have remained flat. While this stability has been nice, it means that home prices have not appreciated, either.
In fact, you can still purchase the same home model down the street from us for the same price we paid for our home. You may consider that a great thing since we should be able to sell our home for the exact price we bought it. While this is true, it does not consider that we are currently still in a buyer’s market.
Buyers currently have the upper hand in real estate deals. They can demand that the sellers make additional repairs, cover all closing costs, reduce their asking price, etc. If a seller tries to stick to his guns and not negotiate enough, the buyer can simply go down the street and find a more willing seller to bargain with.
There are so many homes on the market, and home sellers are doing everything in their power to keep buyers happy. So, in my case, while I most likely would not lose money on the asking price for my home, I could lose thousands of dollars in extra demands buyers almost certainly will make in closing costs and extra repairs essentially eroding the down payment I made four years ago and most of the equity that I have built up.
Why we chose to become landlords
I’ve always dreamed of investing in real estate. Becoming a landlord allows my family and me to continue growing our net worth as our renter helps us pay down our mortgage each month. Not only is our rental income a positive cash flow stream of income for my family, but eventually our home mortgage will be paid off and the entire rental income will a passive stream of income for us.
This payoff point is set to occur right at the same time we will most likely retire. Another great benefit of becoming a landlord instead of selling our home is that we will continue to enjoy many tax benefits of being a homeowner. As a landlord, you can deduct items from your income taxes associated with the rental property such as mortgage interest, depreciation, the cost of repairs, insurance, property manager’s fees, and many other costs that you face.
The benefits of a property manager
My wife and I chose to use the service of a property management company to help us find tenants, advertise our home, screen tenants and run credit checks, handle any repairs, take care of evictions, and be responsible for the day-to-day operation of being a landlord. For us it makes complete sense since we will not actually be in the same city that our home is located in and cannot come back to make repairs or show the home to new potential tenants.
We interviewed three separate property management firms and also received recommendations from friends and coworkers before deciding on which firm to use. A property manger may not be the way to go for every new landlord. There are some costs involved with hiring a property management firm. Most charge a fee of 10% or more of your monthly rent. Other firms also charge a fee for advertising your home each time it is vacant, and some also require you to keep a maintenance fund with them in order to expedite minor repairs that may need to be made.
Whether or not you chose to use a property manager, it can be well worth your time and energy to sit down and evaluate the costs and benefits of their services.
Owning rental real estate is a great way to continue building wealth even through tough economic times. This isn’t the best direction for everyone, but it can work out very well in certain cases. You’ll have to take a hard look at your own family’s financial goals and weigh them against the cost of choosing one outcome over another.
Have you weighed the costs and benefits of becoming a landlord vs. selling your home? What did you decide? And what were the key factors that you considered?
- How to Become a Millionaire
- How to Get Out of Debt
- The Best Dollars I've Ever Spent
- How Our Estate Plan is Structured
- How We Paid Our Mortgage In Less than 10 Years
- Money Making Ideas
- How to Manage Your Asset Allocation with Multiple Accounts
- Consumption Smoothing - Save While the Saving's Good
- How to Save on Groceries
- How Much Life Insurance Do You Need?
- Eleven Great Books About Money
- Dave Ramsey is Bad at Math (693)
- Dish Network Customer Service SUCKS (536)
- $8,000 Homebuyer Tax Credit (429)
- Pay Off Mortgage Early or Invest? (424)
- How to Claim the First-Time Homebuyer Tax Credit (352)
- Termite Control: Sentricon vs. Termidor (329)
- How Much Should You Pay a Babysitter? (288)
- Ethanol Blended Gas = Lower Mileage? (272)
- Reduced Credit Limits? Share Your Experience (256)
- $15,000 Homebuyer Tax Credit (242)
- Buying Furniture off the Back of a Truck (237)
- Will Mac OS X Lion Kill Quicken 2007? (191)