As a real estate investor, one of the questions I get all the time is, “should I rent my home or sell it outright?” It makes sense – ideally, you would want to get the most return on your investment – but the truth is, not everyone is cut out to be a landlord. Fortunately, you could always call a property management company to take care of the heavy lifting for you, making the responsibility much easier to manage.
For buyers looking to simply wipe their hands of the property and move on, the answer is simple: sell. But for people who are not necessarily in a rush to sell their home, I ask them to consider renting it out instead. There are a ton of reasons to do so, and a residential property management company can advise you of some of the specific benefits for your area. Below are some of the most common reasons that I cite for people, however.
More People are Looking to Rent
Buying a home is still seen as part of the American dream, but the financial crisis of 2008 scared a lot of potential homebuyers who feared they would get caught up in the recession and lose a lot of the equity in their home. Since that time period, I have fielded more calls for people looking to rent than ever before, and I don’t think I’m the only one.
An agent that wants to sell your home will most likely tell you that the market is hot right now, and you can get more money for your house than ever before. While that’s true, the same could also be said for renting; homes that used to rent for a much lower price are seeing an increase in rental value simply because demand is greater.
Buying your home is great in that it gives you a lump sum of cash right away that you can invest into other ventures or into a new home, but buying is also a one-time, all-in commitment. The sale process takes longer as opposed to renters who can view and sign a lease within a week’s time, giving you access to funds quicker. Moreover, you can always decide to sell your home after renting it for a while if you want to; no matter how much it depreciates, it’s still a physical asset that will retain some value.
The Tax Benefits are Enormous
Owning your home comes with a certain amount of tax benefits, but the tax benefits of renting a home are also noteworthy. For instance, did you know you’re allowed to write off the mortgage interest and real estate taxes that come with your property every year? Moreover, any additional fees such as maintenance costs, HOA fees, travel, insurance, utilities, and a whole host of other deductions are available to you as well. Add those up over a few homes, and you’ve got some substantial tax breaks coming your way.
One of the best tax advantages that my clients are usually shocked to hear about is the depreciation on your rental property. While this deduction isn’t permanent – about 27.5 years total – it still allows for a substantial tax benefit that can last for a long time. It should be noted as well that this deduction only applies to the value of the structure, not the land it sits on.
It Pays for Itself
Unless you need the money immediately to put down on a new home, I always tell my clients to use the rental income to pay the mortgage payment itself, essentially giving you a home for free. In many cases, the rental income is bigger than the mortgage payment itself, so you’ll net a nice bonus every month on top of having a free house, especially if the rental agreement stipulates that the occupant is responsible for all utilities.
Once you’ve paid off your house, which happens quicker the more homes you acquire, you’ll be able to reinvest that rental income into more homes which expands your portfolio or into a high-yield investment account. Either way you slice it, having a few rental houses under your belt is a fantastic asset to live off of, and even though nothing in this life is necessarily a “sure-thing” you’d be hard=pressed to find anything better.
You Still Have a House, If You Need It
The average person moves over eleven times in their lifetime. While some of those are going to be home purchases, a substantial number of them will also be rental properties, which means you have a steady stream of interested occupants ready to move into your home.
But what happens if you move out of your home for a new job and then the job goes kaput? I can’t tell you how many times I have seen people eager to sell their house to get a lump sum of cash and then march right back into my office a few months later looking to rent again. Renting out your home means that your asset is still there if you need it, no matter what happens in your life. If you decide to rent out your home first, you can always decide to sell it later, but letting a property management company take over your home in the intervening area can be a convenient way to keep some flexibility.
Renting Your Home Is a Fantastic Passive Income Stream
Once you sell your home and you get that lump sum of cash in your pocket, that’s it. No more payments, no more money coming in, your association with your home is finished.
On the contrary, allowing a residential property management company to oversee your home to rent out to their stable of clients allows you all the flexibility and financial incentives that come with being a landlord without any of the hassles of finding clients and maintaining the property. There’s no doubt that advertising, showing, signing the paperwork, and doing basic repairs on the house when the need arises is the most time-consuming aspect of being a landlord, but all of that is taken care of when you list through a management company. This makes your investment truly passive.
While you could certainly place the pile of cash you receive from a home sale in the stock market, the returns on that are not always reliable, whereas property is far more stable. If you want a steady stream of income every month with a very minimal amount of overhead, consider renting your home instead of selling it outright.