Andrew Carnegie made the famous statement that 90% of millionaires created their wealth through property investing. While things have shifted a little in today’s modern landscape, millionaires still say that real estate is one of the best investments you can make.
Are you torn between the option to rent out your home or sell? Going the rental route could be a perfect opportunity to build wealth.
If you sell, you might miss out on a number of attractive financial advantages.
Selling your home might sound like a great way to free up cash, but it’s not always the smart decision – especially in today’s housing market.
Read on to find out 6 reasons why you should rent out your home instead of selling.
1. Renting Out Your Home Can Help You Build Equity
One of the big benefits of turning your home into a rental property is it’s a great way to build equity. If you can rent your home out for a good price, you should be able to more than cover your mortgage payments.
This creates a semi-hands-free way to build equity in your property. Providing you get good tenants, and you don’t have a high tenant turnover, you can basically “set and forget” your monthly mortgage payment.
Instead of having to cover the mortgage every month with your personal income, you can let the rental property income cover the payments. Every month the equity you have in the property will increase. And with a good investment strategy, you may even see a monthly profit.
If you do still decide to sell in the future, you’ll get more money out of the sale than if the rental payments hadn’t been building up your equity.
If you don’t decide to sell, when the rental income pays off your mortgage entirely, you’ll have full equity in the property. After this, you can use the rental money as extra income for yourself, or use it to facilitate another investment property.
2. The Resale Value on Your Home Might Be Higher in the Future
Another reason to rent out your home rather than sell it is that its value might be higher in the future.
Of course, property price increases can never be guaranteed. However, if your home is located in a good area, where housing demand is high or expected to grow, it could be well worthwhile to hold and allow your property to appreciate in value. This is by far the largest return on investment.
Another thing to think about when it comes to future property prices and real estate trends is inflation. Real estate tends to retain its value in the face of inflation. As inflation rises, so do property prices, and subsequently, so do rental prices.
Currently, the US is facing inflation rate highs that haven’t been seen since 1982. Although the fed is promising to rein in inflation over the next fiscal year, consumers would still do well to hedge their wealth from devaluation through inflation.
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3. Renting Out Your Home Can Make It More Attractive to the Right Kind of Buyer
Something to think about when weighing up renting vs selling your home is that renting might make your property more attractive to the right kind of buyer.
The general consensus is that renting out a property makes it less sellable. There are a few reasons for this. Firstly, buyers might assume that the property is not as well looked after, or that it has stock-standard renter-grade fittings and amenities. Things many homeowners don’t want to see in their primary residence.
Another reason that it can be harder to sell a leased home is that scheduling viewings can be a little more tricky. However, if you organize things correctly with your real estate agent or property manager, selling a leased home isn’t too difficult.
What’s more, if your property turns a good profit as a rental, and you market it in the right way, you could even attract increased interest from investment buyers looking to get into the rental market. Investment buyers are typically on the lookout for rental investment properties that command high enough monthly rent so they can turn a profit and generate a passive source of income.
If you are already doing this with your property, it proves to potential buyers that the property is more than capable of generating a good return as a rental.
4. Renting Out Your Home Can Be a Passive Source of Income
Speaking of passive income, if you can make a monthly profit from choosing to rent your home, this can be a passive source of income.
To generate a profit you have to make sure that the rent you can ask will cover your mortgage, as well as maintenance costs and repairs, accounting and property management fees, homeowner association fees, and tenant turnover costs. These include things like:
- Gaps between tenant occupancy
If you work with a reliable property management company, they will ensure these regular expenses are as low as possible and that you have a low tenant turnover rate.
If your property is in a good area, you should be able to achieve a profit on your rental.
5. If You Rent Out Your Home You’ll Enjoy An Increased Tax Deduction
One of the benefits of renting out your home that a lot of people don’t know about is the tax deductions. Although you will need to report the rental income you make, you can also claim deductions for:
- Mortgage interest deduction
- Property depreciation
- Repair Costs
- Property taxes
- Operating expenses
In contrast, if you sell your home, you might have to pay capital gains tax on the proceeds.
*Always consult a tax professional to ensure your investment property is reaching its highest potential.
6. Renting for Yourself Might Be Better Than Buying
Another thing to think about if you’re trying to decide whether to rent or sell your home is if you should rent or buy your next home.
Often, people sell their current home so they can have a deposit to buy a new home. Owning is almost always considered to be the better option to renting, but this isn’t true for every situation.
If you’re moving, do you understand the property dynamics in the new area? Are you sure you want to stay there long-term? Are there good deals in the real estate market, or will you be settling for a home you don’t really like at an inflated price?
Every time you buy or sell a property, you will incur extra expenses, such as listing fees and transfer fees. In many situations, it might make better financial sense to rent out the home you currently own and allow the income to pay for a rental for yourself until such a time that it makes good sense to buy another property.
Are You Wondering How to Rent Out Your Home Hassle-Free? We Can Help
If you’re trying to decide between renting vs selling, it’s important to factor in the benefits of renting out your home. These include passive equity building, generation of passive income, tax benefits, and potential property appreciation.
If you utilize a reputable property management service, you can also avoid most property rental pitfalls.
Are you looking to rent out your home and generate a source of hands-off income? We can help.
MoveZen Property Management is a professional property management company. We take the work out of rentals.
Contact us today to rent out your home the safe, easy way.
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