Should you rent or sell your home?

In an area as transient as Jacksonville, NC, homeowners are often faced with the prospect of moving.  It's part of the military lifestyle, right?  It should always be a discussion whether to rent or sell.  

Some people don't want to deal with the hassles of being a landlord.  Some people don't want to bring money to the table to close.  Whether you should rent or sell your home addresses the question:  how much can you sell your home compared to what you owe.  Regardless of what you decide, experts suggest knowing your competition to know how to price your home for sale or rent.

Becoming a landlord can mean a lot of work.  It’s a very subjective decision—there’s no formula.  On the other hand, owning a home costs money. Real estate is an investment and you have to put money into your investment and nurture it.

Since your current home could hamper your purchasing power of another property, experts suggest answering a few questions to make the decision process easier.

Question No.1: How much can you charge for rent?

If you owe more than what you can sell it for and you have to leave the house anyway, look at how much you can rent the house for. Consider whether the rent that you can charge will pay for the monthly mortgage payment, taxes and insurance or if you have to cover the difference every month.

Renting could work well for you if property values are rising.  Treat that rental property like its own company—any profit goes back into the property for repairs, maintenance and to pay down that mortgage.  Hold all profits in an emergency fund or reserve for the property to cover any unexpected expenses or to help pay down the mortgage.

If you do have a positive cash flow, it may be better to hold onto the property and become a landlord, says Daren Blomquist, vice president at RealtyTrac, but consider whether you want this responsibility. “If you’re counting on home price appreciation to get your investment back on that property and in the meantime, you’re losing money every month [from renting], it may be a good time to cut your losses and not wait out home price appreciation.”

Question No.2: Do you have to upgrade your property?

A tenant won’t put up with the problems that you did, so Blomquist recommends walking through the house and assessing what needs to be repaired or upgraded.  

If you decide to make substantial upgrades, analyzing every individual element isn’t an accurate portrayal of what you’ll get back. “When you do a few changes together, the kitchen, bath, painting and carpeting, all the sudden you’ve raised the level of the house to something nice,” says Corbett. “The whole is better than the sum of the parts.” Upgrades in strategic areas of your home create a lifestyle upgrade that could make the investment worthwhile.

While getting rid of clutter and painting can help sell your home, take a common sense approach to home improvements. Over improving your home won’t get you a return on your investment while improving your home to the neighborhood norm will get you more of a return. If you’re in a buyer’s market with plenty of inventory, you’re going to have to make that home competitive.

Question No.3: How much does it cost to maintain your property?

Rental properties have continuous maintenance expenses, especially when a tenant moves out. “You need to have a bit of a cash flow every month,” says Corbett.

Tenants can be just as picky as buyers and there are costs to turning a property, like repainting, cleaning carpets, replacing flooring, and repairing any damage or wear and tear. Landlords tailor rentals differently than they do their own homes.

Sometimes you have to decide if it’s better for you to sell and take a hold onto the property and rent it out for the long term knowing there are expenses with every new tenant.  You have to take care of these things otherwise you won’t get as much rent.

Question No.4: If you’re underwater, is a short sale worthwhile?

If your house is underwater, you may need to bring money to the table at closing. The amount you owe can determine whether it’s worthwhile to rent your home and take advantage of the housing recovery or pursue a short sale. Since home prices appreciate about 3% per year on average, it’s probably worth it to rent a home with an LTV less than 110%, says Blomquist. Doing a short sale could hinder your ability to buy another property.

For higher LTV homes, a short sale may be a good option because banks are willing to approve short sales even if you haven’t missed a payment, says Blomquist. Also consider that the law exempting homeowners from paying taxes on debt that’s forgiven expires in 2014, which may provide additional incentive to cut your losses.

Call Amanda today to talk about your real estate options!  910.545.0450