Pros and Cons of Renting Your Home: What Factors You Should Consider

With home inventory still low, many homeowners are considering selling their homes. If you have a second or third property or one that is not your primary residence, you may be tempted to list your home on the market. Or, you may want to generate another stream of income and rent it out. We’ve compiled a list of some crucial considerations to evaluate and help you decide: should I rent or sell?

Here are some key factors to consider if you’re leaning towards renting:

1. Sentimental value- Let’s start with matters of the heart. If you have an attachment to the area in general or the home itself, but you’re seeking a new job opportunity elsewhere or life is pulling you away for the moment, but you’ll likely return, you should rent. This way, your house is there waiting for you when the timing lines up later or while you venture away. If you’re sticking in the area, but have outgrown the house but have future plans, this is a great investment as well. You could act as your own property manager and landlord. If moving away, you can seek assistance from a rental management company or Realtor® in the area. 

2. Supply and demand- Your property may be in an area where there’s high demand for rentals. If you live in a college town, an up-and-coming area, close to a military base or a transient area in general, or a city with booming job growth, you’ll likely be able to find renters easily. 

3. Amenities, amenities, amenities- Your house or apartment might come with some key amenities that are appealing to renters. You may have a park or green space nearby, be close to public transportation and good schools, you might allow pets in your home, have ample and convenient parking for guests, and extra space for families or storage. All of those factors are highly desired by renters beyond the main factors of location and price. 

4. Tax incentives and future inheritance- The investment opportunity that comes with renting out a property can lead to capital gains, some tax deductions and incentives, lessening your overall tax burden, and providing a potential inheritance for your heir(s)-- all while generating income in the meantime.

5. “Money, money, money… MAH-NAY!”- Many people rent for some extra money. While you’re building equity in your home and paying down or paying off the mortgage, you could potentially make extra money for retirement or additional investment opportunities, bank some funds in a travel account, or add to a college fund for your kids. Generating cash flow, making a passive income, establishing another income stream, and, yes, even cashing in on some tax breaks all will quite likely lead to a positive return on investment. There are certainly costs to renting and repairs to budget for, but you should see a nice ROI if you do your due diligence and complete background checks on your renters. No matter how you look at it, more money coming in is always a positive and may allow you to have more freedom and flexibility in other aspects of your life while providing more financial stability. 

On the other hand, you may be leaning towards selling as well. Here are some key facets that may convince you to sell: 

1. “Money, money, money… MAH-NAY!”- Yeah, we know we just put this as a positive for renting, but it is guaranteed cash in your pocket NOW for selling. The market is still quite hot and inventory is historically low. The demand is definitely there to make a nice chunk of change on your home if you decide to sell right now. In addition, renting can come with its share of unforeseen expenses, major repairs, and potential property damage if your renters aren’t great (which we’ll touch on later as well). If you do the basic steps right, employ the expertise of a realtor, and do a little house prep, you’ll likely receive multiple offers and have the better cards in your hand when it comes to negotiating as well. Wherever you are in the U.S. right now, you’re very likely to walk away with above asking price and can cash in on your home equity as well. 

2. Becoming a landlord- If you’re still in the area, renting a property out entails responsibilities of a landlord as well: managing repairs or doing them yourself, leasing out the property, finding and screening tenants– it can become a burden. Or, you could hire a property manager, but that may take more money from your potential profits.

3. You’d have to charge more than its worth- When homes increase in price, the return of rent decreases. The gross rent multiplier (GRM) is a key ratio when determining how much you’d have to charge in rent in relation to the overall value of your home. If your home is older as well, you’d want to account for extra maintenance fees when crunching your numbers and determining rent. At the moment, you may also lack the cash or liquid funds for property management fees, taxes, and other hidden costs of renting. 

4. It’s not a great rental property- Maybe your location doesn’t meet the needs of a family or you wouldn’t be comfortable with pets. The properties that always get leased have many of the desirable amenities mentioned above. When push comes to shove, “great rental” just may not describe your property, as much as you hoped it would. Many people simply just don’t have the personality to be able to relinquish control and take the risk of renting either, which brings up the last and final potential setback: poor renters.

5. Risk of poor renters- Even if background checks do pan out and your renters have good credit, they could still do damage to the property-- or their friends could. As lucrative as renting sounds at times, it is still a risk-- especially if you’re renting on your own and not using an established property management company. While there are legal options when renting goes awry, that may be more stress than it’s worth. If you know your renters personally, that would be an entirely new ballgame, but most people do not have that luxury. 

The bottom line: weigh your pros and cons and figure out what you’d personally feel comfortable with doing. Then, consult a rental property calculator and your most trusted real estate agent to bounce ideas off of them-- we know quite a few awesome ones who can help you decide whether to list or lease! Give us a call if you’d like to discuss your options.