6 Reasons Why You Should Rent Your House Rather Than Sell It
Deciding whether to sell or rent your house is a stressful process. There is always a risk that the housing market will take a downturn, making it next to impossible to sell your house in the future. However, generally, the benefits of renting outweigh the advantages of selling a property. If you’re facing a move in the near future and are thinking about renting your current house, consider the following benefits of renting.
Build long-term equity
The state of your mortgage and local housing market dictates the worth of your house. There’s no guarantee your house is worth as much as you paid for it or as much as you believe it’s worth. However, over the past decade, housing trends across the country have been positive. During the last 10 years, the median sale price of existing single-family homes increased 81%. As such, it’s likely your home will continue to go up in value the longer you hold onto it.
Reap Tax Benefits
Owning a rental property offers multiple tax benefits. You’re able to write off all of your home-related expenses including property taxes, insurance, mortgage interest, repairs, utilities, homeowner’s association fees, travel to and from the property, and property management company fees. Keep receipts and other necessary documentation on all home expenses so you get your write-offs approved.
Rental property owners are also allowed to deduct the depreciation of the property structure over a period of 27.5 years. For example, if your property was worth $250,000 when it was built, you may deduct approximately $9,090 annually as a depreciation expense for owning the property. The property value must be calculated as the structure alone and not include the value of the land.
General tax-free cash flow
When you leverage your capital properly, your cash flow from your rental property will be tax-free, thanks to depreciation and mortgage interest deductions. The more mortgage you pay down, the more flexibility you’ll have with the cash you generate with your rental property. Extra cash flow enables you to keep up with general property maintenance and potentially invest in other properties or businesses. If you’d like to learn more about minimizing tax flow on your rental property, consult with a certified tax professional.
Avoid Loss in a Down Market
No one wants to lose money when they sell a house. In most instances, when there is a downturn in the housing market in a given area, there’s still a need for high-quality rental properties. You may not be able to sell the house for the price you paid, but you will be able to get an appropriate rent to cover the mortgage payments. If you have the financial flexibility to buy your next house without selling the current house, it’s worth holding onto the current house during the down market.
Keep Your Options Open
Some people rent a home instead of selling it because they’ve always dreamed of owning multiple properties. However, renting a home doesn’t necessarily need to be viewed as a long-term investment. If you’re facing a down market or have only owned the home for a few years and don’t have much equity in it, renting the house makes sense as a short-term solution. Once the market has returned to a healthy state or you’ve built up enough equity that you wouldn’t take a loss on a sale, you can decide if it makes sense to keep renting the home or sell it. In between tenants and lease terms, re-evaluate the value of the home and then determine if it’s the right time to sell.
Rental demand is increasing
Over the past few years, rental rates have increased significantly. There are more than 40 million single-family homes rented in the United States, an 185% increase from just three years ago. With more demand and less supply, landlords are able to charge competitive rental rates.
Every homeowner’s worst nightmare is to have a terrible tenant who doesn’t pay rent and/or trashes the home. Establishing and enforcing strict guidelines (i.e. no smoking, no pets) and screening your applicants thoroughly significantly increases your odds of securing good tenants. If you don’t feel comfortable securing your own tenants or need assistance taking care of the property, consider hiring a property management company. They’ll take a cut of the rent, but it’s worth it for the resources they offer.
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