Should I Rent or Sell My House?

Have you been asking yourself, “Should I sell my house or rent it?” Discover a complete guide on the pros and cons of renting and selling!

Recently, everyone –– from self-proclaimed financial gurus to working-class Americans –– seems to be looking for ways to achieve financial independence so they don’t have to worry about how much is needed to retire later. Be it through disciplined saving, smart investing, expert planning, or some other strategy, more and more people are exploring pathways to accomplishing this future goal. While some may take up day trading or work on launching a side hustle (or two), most are after the same thing: passive income.

Passive income refers to consistent income that does not require regular effort 1 in the way many standard income sources do. Income from a 9-5 job, for example, is not passive, as it is the result of the routine, hourly labor. Rental properties, on the other hand, are one of the best examples of passive income. With that said, renting out your house (or even selling it) might not be the best path to financial freedom for you. If you’re asking yourself, “Should I rent or sell my house?” keep reading for the answers you’re looking for. 

How Do I Decide If I Should Rent or Sell?

Deciding to rent or sell your home may not be an easy one. Homes are significant investments and can house countless precious memories. For some, the thought of selling a home quickly where you’ve watched your children grow up can be daunting. Like most things, however, there are definite pros and cons when asking, “Should I rent or sell my house?”. And knowing the right time to rent or sell your home can make all the difference.

The Right Times to Rent

There are several unique advantages of renting, especially when the timing is right. Check out this list to determine if the time may be right for you to rent your home:

• When You Want a Consistent Passive Income Stream: As mentioned before, rental properties are some of the best ways that homeowners can earn passive income. In many cases, homeowners will move into a different home before renting their existing property out, but owners of duplexes (or even those with a single available room) can still earn some additional rental income. If you want to hold onto your current home while diversifying revenue streams, renting might be the way to go –– just be sure that the rental value exceeds your existing mortgage, and be wary of property tax nuances.
• When You Expect Your Home to Appreciate in Value: Try as some might to convince you otherwise; no one knows for certain what the housing market will do next. If you believe, like many do 2 , that housing prices are going to continue to climb, renting your home may be the better option. If you have a second residence or can continue living on your rental property, renting will enable you to profit off of ownership while allowing your property’s value to continue climbing.
• When You Plan on Returning to Your Rental: Following the impact of Hurricane Ian in Florida, many “snowbirds” who owned second properties in Florida decided not to return to their oceanside homes for the winter season. For some, this was due to serious property damage. However, those who weren’t directly impacted have begun renting out these properties (sometimes at a friendly rate) to those who sustained serious storm damage. In effect, these property owners can lend a hand while earning some additional income until Florida’s beaches are once again vacation-ready. All this is to say: If you plan on returning to your home, renting may be a better decision than selling — and it might end up doing some good.
• When You Need the Extra Income: With the economy in flux, some Americans have fallen on hard times and are actively looking for temporary (or permanent) ways to make ends meet. For some, renting out a room to a friend, family member, or trustworthy stranger can be a great way to make up for lost income or pad family emergency funds. As opposed to downsizing and selling your home, renting is a short-term solution; when you’re back on your feet, you’ll still have a home of your own.

The Right Times to Sell

• When the Market Conditions Are Right: Taking note of current market trends such as interest rates, home prices, and more can help inform your decision to sell or stay. If you own a home right now, there’s a good chance it’s worth more than you ever imagined. That’s why, at the time of writing, homes are still selling rapidly and fetching best-ever sale prices 3 . As opposed to renting, choosing to sell your home at the best possible time will net you a lump sum that might be too significant to pass up. Of course, a thriving real estate market will also raise potential rental home prices, but if the market dips, you may have missed out on a potentially record-setting sale. This decision also comes down to determining when the best time of year to sell a house is, and if you can feasibly do so during that window of time. 
• When Renting Isn’t for You: In theory, turning your home into a rental means adding a perfect passive income stream and taking a leap toward financial independence. In practice, it can mean vetting potential renters, chasing down late rent checks, and potentially having to break some bad news. If putting on your landlord that isn’t something you’re interested in, selling your home outright might be a preferable alternative.
• When You’re Ready to Downsize: Among the top reasons why homeowners make the decision to sell, life-cycle changes are some of the most compelling 4. If you’ve found yourself with more space than you know what to do with, selling your home to purchase a smaller one can be a great financial decision. There are several questions to ask when downsizing your home, but ultimately, the decision is up to you and your unique needs. Whether the proceeds of downsizing allow you to look in new neighborhoods, put money toward home improvement projects, or use the extra cash to see the world, downsizing is a top reason for selling.
• When You Need the Down Payment: In a 2018 survey 5 , only 6% of respondents from 30-49 and 4% of respondents aged 50-64 said they owned a second home. So, while some homeowners are able to comfortably purchase a second property without using the proceeds of a separate sale, it’s far more common to sell a home in order to fund another. If you’re like most Americans, selling your existing home might be the only way to move into another, making renting impossible. That said, using the sale proceeds to purchase a duplex that can double your residence and a rental property may be a way to get the best of both worlds.

See related: How to Use Home Equity to Build Wealth

Do You Make More Money Selling or Renting a House?

Whether you decide to rent your home for passive income or sell your home outright, there are a number of ways to ensure you get the most bang for your buck. Before we determine which way can make you more money, let’s look at ways to make the most out of each.

Maximizing Your Home’s Sale Price

There are countless ways that home sellers can increase the value of a home. Be it through sizable renovations (like finishing basements, adding bathrooms, or installing swimming pools) or minor ones (like elevating curb appeal or sprucing up your home’s decor), improving your home can pay off when it comes time to sell. Working on these aesthetic improvements can drastically improve the overall home value and signal to potential buyers that your property is just what they are looking for!

Maximizing Your Home’s Rental Value

When it comes to renting, many of the same value-adding tips listed above also apply. However, homeowners who sell will see a near-instant return on their renovation investments. Those who rent, on the other hand, will have to be patient to see a full return on their investment. With a little bit of strategic thinking, a rental property owner can give their property a boost without hefty out-of-pocket costs.

Here are some sub-$1000 improvements to place your home in high demand for renters: 

• Paying for a professional pressure washing
• Maintaining the lawn
• Painting the exterior
• Installing new fixtures
• Upgrading some home appliances

Which Is the More Profitable Choice?

Beyond the emotional connections to your home, the answer to the question, “Should I rent or sell my house?” will likely come down to the potential financial benefit. At face value, the decision to rent or sell may remind one of the adage, “A  bird in the hand is worth two in the bush.” Selling, in this case, is the guarantee, and renting is the potential for more. However, the decision is far more complicated than that.

• Tax Implications: When selling or renting a home, potential taxes should be taken into consideration. Selling a property outright can incur a capital gains tax 6 if you have not lived in the property recently or if the property exceeds a certain value. Renting, on the other hand, can come with several tax benefits and potential deductions, but if the post-tax amount does not exceed the cost of the mortgage, then you may  incur a loss.
• Maintenance Costs: Regular home maintenance can be a burden, but it’s worth it to those looking to protect their investment. Once the home sale is final, that responsibility is no longer yours — and the meticulous care you put into maintaining the home over the years will hopefully pay off. With a rental property, however, the responsibility to protect your investment remains on you. Depreciation is bound to happen with even the most respectful tenants, and the costs of maintaining the property can quickly begin to eat into your monthly rental earnings.
• Rental Personnel: With a rental property, many homeowners will take it upon themselves to field phone calls from prospective tenants and anticipate repair needs or hire someone else to do this for them. A property manager (or property management company) will fill this role, often for a sizable percentage of the monthly rent. While this can be relieving for some homeowners others may find that the existing mortgage payments paired with property management fees make renting the home no longer worth it.
• Real Estate Fees: There’s still costs of selling a home, too. Though some homes are sold “by owner” in 2022, many homeowners choose to let a licensed real estate agent carry the responsibility of scheduling with potential buyers, leading showings, staging the home, and communicating with buyer’s agents. Considering the commission for real estate agents is 6% on average 7, homeowners looking to walk away with as much of their home’s sale proceeds as possible may question whether it’s worth it after all.
• Selling a Home After Renting It: As mentioned earlier, homeowners that sell a property after an extended period of not occupying it may take a significant tax hit. Although a rental property is technically occupied by a tenant, sales of this type of property will still incur a tax. So, if you stand to make a tidy profit off of your home’s sale, selling may be the better option than renting. 

Ultimately, whether you stand to make more money off the rental of your current home or the outright sale will come down to how well you are able to take advantage of tax incentives and the conditions of the local market. However, having the cash flow in hand may be the better option for many homeowners currently experiencing the “Should I rent or sell my house?” dilemma.

The Bottom Line: Should I Sell My House Now?

Answering the question, “When should I sell my house, if at all?” is a complex and personal undertaking. If you have a strong, emotional attachment to the investment property, renting is a way to keep the home (and the memories it contains) in your possession while diversifying your revenue streams. If you’re at a point in your life where the proceeds from the sale mean more to you home equity can fund equally-memorable trips around the globe. Given the current market conditions and the relative uncertainty ahead, home selling may be the right financial option for you. Factor in the unexpected costs, labor, and frustration that can come from being a landlord, and a straightforward sale becomes all the more appealing.

With that said, a straight sale isn’t the only option. A sell and stay transaction allows you to sell your home, cash in to leverage your home equity, and continue living in the familiar environment as a renter. With your home equity in hand, you can apply it toward living the life you’ve always dreamed of.

To learn more about Truehold’s sell and stay transaction and discover an alternative to the traditional sale process, chat with one of our representatives today!

FAQs

What months are generally tougher for selling properties?

The real estate market often slows down during the winter months, particularly December and January, making these periods more challenging for selling properties. Dive into specific seasons' pros and cons on Truehold’s post to discover the best time of year to sell your house for maximum profit and a quicker sale.

How do I determine if it's the right time to sell my house in the current market?

To understand the most opportune time to sell your house in today's market, it's essential to grasp the factors that influence your house's worth in 10 years. This includes analyzing supply and demand, interest rates, and economic indicators. Understanding these elements can help you decide if you should wait to sell your house, ensuring that your decision maximizes your property's future value and aligns with your financial objectives. Considering a sell and stay transaction with Truehold could offer a strategic solution, providing liquidity while allowing you to remain in your home as a renter.

‍

Sources: 

1. Indeed. All You Need to Know About Passive Income and How to Build It. https://www.indeed.com/career-advice/pay-salary/passive-income-options

2. Ramsey Solutions. Housing Market Predictions for 2022. https://www.ramseysolutions.com/real-estate/housing-market-forecast

3. Forbes. Housing Market Predictions In 2022: Will Prices Drop?  https://www.forbes.com/advisor/mortgages/real-estate/housing-market-predictions/ 

4. The Balance. Why Do People Sell Their Homes? https://www.thebalancemoney.com/why-home-owners-sell-1799021 

5. Statista. Share of Americans Who Own a Second Home in 2018, by Age. https://www.statista.com/statistics/228894/people-living-in-households-that-own-a-second-home-usa/

6. Upnest. Selling vs. Renting: The Pros and Cons. https://www.upnest.com/1/post/selling-vs-renting-the-pros-and-cons/

7. Redfin. How Real Estate Commission Works. https://www.redfin.com/guides/how-much-is-real-estate-agent-commission-buyer-seller