After the congratulatory celebrations of closing on a dream home, the reality of what to do with your current property sets in. While selling is mainly the go-to option, it's worth considering whether renting out your home makes more sense for your finances and future goals. In recent years, this type of methodology, short-term rentals (STR), has gained popularity, with 28% of homeowners considering using a rental service to rent out their homes for passive income. But is it right for you?
Things to Keep in Mind for Renting Your House
As you weigh your options, the first step in the process is determining if there are any federal, state or local laws about renting your property. You should also review your homeowners' associations (HOAs) and neighborhood covenants to confirm that there are no clauses barring you from renting out the property. The property will also be under strict code guidelines concerning structural, plumbing and electrical elements.
Consider how time-consuming the job of being a landlord can be. The property is now your responsibility, which means you are liable for injuries to tenants and visitors. As a landlord, you will field questions about repairs and possible neighborhood complaints. To safeguard yourself from sticker shock, consider buying into landlord liability insurance or landlord property insurance, as standard homeowners' insurance does not cover all these cases.
When you Should Rent your House
Renting and the landlord's job may not be suitable for everyone and or every property. One of the biggest factors is location. Research the local market to determine if your neighborhood is in high demand. Is it in or near a travel destination? Is the school district desirable? Or your property is near a downtown hub full of great nightlife. Begin researching how much rentals list for and how often these properties are on the market; this will determine how many rental requests you may expect.
While impractical to predict the housing market, you may be able to make an informed prediction about where it is headed in the next few years. In this case, you could expect your home's current value to jump and can hold out on selling once the market starts to tread upward. The decision could also be based on intent to return to the area or if the move will only be temporary and you want a home base to return to.
If your ultimate goal is to purchase your property, rental income will be your greatest asset for savings. When mulling over how much to rent your house for, remember that the rate should cover not only the mortgage payment but taxes, insurance and occasional maintenance costs. Depending on when you choose to purchase a new home, when reviewing your finances, lenders may only count 75% of rental income as a source of income.
When Selling Your House is the Best Option
However, you may decide not to rent out your house for a few reasons, especially if selling provides you with the necessary money. For example, if the purchase of your new home is dependent on the sale of your current, you will want to sell at the right time and price. Your appreciation may have increased, depending on how long you have owned the home and how much you initially paid for it, meaning you could make a significant profit.
You may also want to jump in during a seller's market when buyers exceed the number of homes for sale. This allows you, as the seller, to choose the best offer, possibly walking away with more than you would have by renting.
Whichever you choose and for whatever reason, do not hesitate to reach out to NMC Realty Group to root out your best options.