Rent Or Sell? What To Do With Your Remodeled Property.
If you’re a homeowner with a newly remodeled property, there’s a good chance you’re racking your brains about whether to rent or to sell. The answer is rarely clear cut, and you’ll need to carry out plenty of research if you want to come to the most profitable, logical solution.
Pros To Renting
The most glaring benefit of renting may already be obvious to you – income. With reliable long-term tenants or holiday guests, your property represents a stream of continuous revenue and, over time, pays for itself. Depending on the nature of the market, this may also represent a more profitable option until house prices have adapted to better accommodate sellers. As a landlord, you’re ultimately looking to capitalize on a ‘landlord’s market’ – with low vacancy rates, high supply of tenants and surging rates.
Another perk of renting relates to tax. Oftentimes, you can deduct expenses such as advertising, broker’s fees, repairs, and maintenance. On top of this, if your property is for rent and deteriorates over time, you can use the depreciation to recover costs. This deduction is employable for the lifetime of your property, which the IRS considers to be 27.5 years.
Cons To Renting
Before committing as a landlord, it’s vital that you understand the affiliated costs. The typical expenses when renting out a property include marketing, insurance policies, maintenance, utilities, and taxes. You’ll be responsible for paying tax on any earned income (although some expenses can be used to offset this, see the previous paragraph). Although these might seem minimal at first, they are largely dependent on the tenants, the structural health of the property as well as the state of the market. A worn down, unattractive property, in a low supply market can quickly become a money sink and cost you more than it’s worth.
Additionally, as a landlord, you’ll be required to spend time dealing with paperwork, inspections, tenant communication, and management of any contractors. A property manager can help to take some of these responsibilities off your plate but will certainly take a bite out of your monthly revenue. If you’re someone without much time as it is, you might want to do some quick arithmetic and work out whether you have the available hours required.
Pros To Selling
The benefits of selling a property are dependent on a number of factors, one of which is timing. If the real estate market in your area is forecast to drop in the coming years, you may benefit from selling sooner rather than later. Equally, if the market as a whole is benefitting sellers, it’s worth remembering that it might not be this way forever. Selling at the right time is the best way to generate the maximum amount of income in the minimum amount of time.
It’s also important to consider the current tax climate. Current laws exclude you from capital gains tax in a sale up to $250,000 (or $500,000 if you’re married). Depending on your sales bracket, this can mean avoidance of sizable taxes on large transactions. Laws change and you may not have this opportunity forever!
Cons To Selling
Selling a home comes with many risks, which are not always easy to foresee. You may not, for example, be able to coordinate the sale of your current home and the purchase of a more favorable property within a reasonable timeframe. It’s impossible to predict the fluctuations of the market – if you want to ensure a financially beneficial process, you may have to work at it. For example, you might sell a remodeled property and purchase a foreclosed property at a discount, then work on maintenance to improve its value. Before purchasing an REO property, be sure to take into account its structural health, location, and availability of community resources.
There are no clear-cut answers as to whether it makes more sense selling or renting your property and, year after year, the market changes unpredictably. Your best hope of making the right decision is to research thoroughly and act quickly.
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