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Current Real Estate Scenario: Should You Sell Your House or Rent It Out?

Aug 29, 2019

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Settling down in life with a better job or career opportunity is what everybody works for. Also, people move across towns, cities, states and even countries in search of better opportunities in life. Hardly anybody settles down per se which has to be the irony of life. Some people buy houses expecting to stay there forever but when posed with better career opportunities, they inevitably have to move away. Well, not everybody purchases a house instinctively but for those who do, they find themselves in a catch 22 situation wondering whether they should rent out their old house or sell it off.

If you are one such person who needs to move to another property due to personal choice or by work compulsion, managing multiple houses can prove to be difficult. However, multiple house problem can be resolved by analysing what you want and what you need. You could simultaneously own two properties and still expect a profitable return if you rent out one of them. On the other hand, you could also obtain profitable returns if you sell the other property. But, which one is better? Which one works out to be most profitable when compared? Let us analyse and tackle that problem.

Factors to be considered

1. Is your move permanent?

The first and foremost thing you need to do is to ask yourself this – “Is this move permanent? Am I ever going to come back to this place? Would I ever want to come back and live in this house in the future, maybe 5 years or even 10 years later?” If the answer is yes to all or some of these questions, then you could be confident of renting it out for some time.

2. Will the rental income cover your expenditures?

The next thing to consider the amount of rental income. Figure out your monthly expenditures, especially your loans, and calculate if your monthly rental income can cover all of that. Do keep in mind that your property incurs monthly maintenance charges as well. If your expenses are more than your income, there is no point in renting out your property.

3. The market scenario at the time of sale.

Let us address this issue straight forward. When the real estate GSS Projects market bubble has popped, there is no point in selling your house for a loss unless you have to. If it is exceptionally good and a jackpot of an offer, there would be no point in renting it out and taking a burden on your head. With these two scenarios in mind, you can plan accordingly.

4. How long will the return on investment be?

Every property you buy is an investment that you make, in the hopes that it will pay for itself in a couple of years. If you are moving out of your property, it is imperative that you calculate the duration for its return on investment. During a property’s sale, the return on investment is almost instant and sometimes profitable. On the contrary, renting out is a long drawn option but in the end, you will still have the property with you along with its investment amount.

Why should you sell the property?

1. Sell to escape a dropping market

One major advantage of selling a property is that you can be rid of all the tensions of dropping real estate prices. Once you are done with your documentation, you can walk away with confidence knowing that you escaped a downward trend. Although this might not be the situation every time, it is good to safeguard yourself from a guaranteed failure.

2. Sell to avoid renting expenses

Renting out your property might seem all hunky and dory but only those who have done it know the real pain. As the landlord, it is your responsibility to take care of your property, its maintenance and any repairs that come in its lifetime. Be it property insurance, mortgage expenses, taxes or bills, you are the one who needs to take care of it. Selling your property before moving elsewhere could rid you of the above troubles.

3. Selling a property gives instant money

Selling a property gives you instant money so there is no question of a financial crisis during this period. Another plus point is the fact that this money can be used to pay for the down payment of the new house that you want to purchase or invest in. Surplus cash in hand also provides financial freedom for you to get started with new investments or to splurge it all if that is what you want to do after all.

4. Sell to avoid the burden of evicting stubborn tenants

Although the possibility of this happening is very minimal, it sure is head breaking when it happens. Unless you are experienced in dealing with such nuisance, you will be in for some legit trouble with stubborn tenants who refuse to vacate from your property. Of course, there is the legal way to do it but if it can be avoided, why invest your precious time at all?

Why should you rent a property?

1. Scope for better pricing in the future

Real estate properties could partly be compared to wine because they get better with age. To be more specific, the prices get better. Maybe not all the time, but mostly it does. Today you might want to sell your house for a good value that it fetches, but what if you held on to it for a couple of years more till its price got better? You could rent your property and wait for the opportune moment to take your call. Although there is no guarantee, better real estate market insights would help in making the right choice.

2. The option of coming back

This option has much to do with emotions and sentiments. Works perfectly for those who are attached to their property. Moving elsewhere due to inevitable reasons but have plans of moving back? A very simple option would be to rent it out to tenants until you are ready to come back. When rented out, it even generates rental income to keep it in perfect condition until you get back.

3. Taxation advantages

And then there are tax benefits. When you rent out a property, you are eligible for tax benefits, unlike any other investment portfolio. Of course, there is a prescribed tax limit for rental income but you only need to file income tax for the amount that is left after your expenses. Suppose you get 30% income from rent and you spend 20% of it for monthly expenses and maintenance of your property, you only supposed to pay tax for only the remaining 10% of the income.

4. Cash flow

When you rent out a property, there is always a possibility for positive cash flow. Your rental income minus all the maintenance expenses coupled with your expenses would be counted as surplus and the remaining amount is considered positive cash. When the cash flow is positive, it means you always have a cash reserve for other personal purposes.

Final thoughts

Both renting out a house and selling it are considerable options. If you are more concerned on your return on investment and are not ready for a new experience as a landlord, selling the property is the option for you. If you always wanted to own multiple properties and a constant rental income throughout the year, renting out suits you perfect. Although it might take a couple of years to pay for itself, having a second property is always a safe option. With better money management skills, surplus money saved could be used for a third investment as well. In the end, it all depends on you – the seller. If you are still confused, evaluate the above factors, weigh out your pros and cons and decide accordingly.