Should You Rent or Sell Your House in Denver? A No-Nonsense Guide to Your Options.
There are a number of reasons that people decide to sell their house. It could be that your children have left the house and you have more space than you need, or you could be approaching retirement and do not want to deal with yard work any longer. Perhaps you have been laid off or are experiencing financial hardship and want to reduce your mortgage payment. These are all excellent reasons to sell, but before you list, you should consider renting your home as an alternative. Below is an honest explanation of the pros and cons of renting vs. selling your home. Remember to take all of this advice with a grain of salt. Your situation will always be unique to you and some of the advice here may not be pertinent. Make sure to talk with friends and family who are homeowners to get their advice, as well as others who may have some insight that can help you.
How to Rent Your House
The first thing you should do is figure out if you will be able to cover your mortgage with the rent amount you will be charging. If you will be in the red each month to cover your mortgage it is probably a better idea to just sell. Spend some time online and get a feel for what similar properties are renting for. Be honest with yourself and conservative in your estimate. One of the best ways to figure out how much you should charge is to use a property management company that will conduct a property market evaluation. They will look at things like how hot the market is, the available inventory of rentals, seasonality, and the condition of the property to come up with a number you can charge.
Assuming that you can cover the mortgage, the next step will be to list the property. In most cases, the best way to rent a house is to hire a professional leasing or property management company to handle the day to day operations. If you’ve priced the rent at competitive, fair market value you should have plenty of possible tenants. One of the best ways to show the house is to schedule showings back to back, on a weekend afternoon or in the evening. This will mean you are not constantly cleaning and it will be a good way to get a sense of the potential tenants.
When it comes to deciding on which tenet is right for you, look at the credit score, income, and rental history, and don’t be afraid to go with your gut. Also, think about giving an incentive to a tenant you really want, like a reduced deposit or waiving of a pet fee. In the long run, missing out on a few hundred dollars in order to get a reliable and respectful tenant is smart for your investment.
The Pros of Renting Your House
There are a number of advantages to renting your home but the biggest might come down to the market you live in. If it seems likely that home values will continue to rise in the next five years, selling now could mean losing out on a tremendous amount of appreciation. By renting the property you will hold on to that money and hopefully be able to sell the property at a higher price.
You should speak to a tax professional, but generally, you will be able to write off any repairs like a plumber or a handyman, if anything breaks down. You will also be able to deduct appreciation on your rental property. This breaks down to depreciation over a 27.5 year period while it’s used as a rental property, minus the value of the land. If you have a home valued at $100,000 and the land was valued at $20,000 you would divide $80,000 (the value minus the land expense), by 27.5, which equates to a tax deduction of $2,909 per year. You also will be eligible to depreciate items like appliances. After the tax code revisions in 2018, you also will be able to utilize the pass-through deduction. For eligible landlords, this means a deduction of up to 20% of their net rental income or 2.5% of what they paid for the property. Again, talk to a professional, but there are a lot of great incentives that you can take advantage of. Plus, using a professional agency to manage your home gives you an even greater incentive.
The Cons of Renting Your House
While there are undeniably a ton of benefits to renting your property you have to be aware of the downsides. Finding reliable renters can be difficult and you will have to deal with showing the property, conducting credit checks, and paying a lawyer or an online legal service to draft an ironclad lease. There is always the danger that the tenant could cause serious damage to your home or stop paying rent, thus necessitating an eviction. Even with great tenants, you have to be on call at a moments notice in case a pipe breaks, a branch falls, the garbage disposal stops working, etc. Having the number of a good repair service or plumber becomes a necessity. For some people, the added headache and time really isn’t worth it. It’s worth noting that many of these downsides can be alleviated by having a professional property management company.
Rent or Sell…What Should You Do?
Unfortunately, there’s no magic formula for deciding if renting a property is right for you. You should talk to people you trust including financial and tax professionals to see if it will work with your unique situation. You will be taking a risk by letting strangers into your home and there’s no getting around that. However, if you can rent the property above your mortgage, there are many tax and long term financial benefits to becoming a landlord.