Selling or Renting Out Your House – The Better Option!
When selling or leasing property of significant financial value, you will want to ensure that a sale or lease makes complete sense.
Whether you’re considering the final sale price or monthly rent, other factors come into play that will influence the final amount in your pocket.
Keep them in view when weighing the options. Read ahead to understand some of these options.
Liquidating or Leasing? How Can You Make More Money?
Should you choose to lease out the property, expect to incur expenses like insurance premiums, taxes, repairs and management, utilities, and other overheads.
The mortgage and Homeowners’ Association fees are additional costs you’ll continue to pay. Scout around for the current rental rates in the market and check if the monthly rent can cover the costs and leave behind some profits.
You must also account for the possibility that the property remains vacant for some months of the year. Remember that you would need to conduct expensive repairs over time to make the place liveable.
Short-Term Vacation Rental
Many homeowners opt to convert their properties into short-term vacation rentals. If your location is a prime tourist or business destination, you could rent out the house and make good money from it.
Managing from a remote location (if you intend to move to another city, state, or country) is not an issue, thanks to the availability of vacation rental software.
These apps integrate listings on different platforms like Airbnb, Turnkey, HomeToGo, Homestay, among others.
The only critical factor to keep in mind is that the earnings you make from the rent should cover the costs of owning the place.
If you think about selling the house, assume that you’ll lose close to 10% of the home’s value in costs like agent fees, sales expenses, and other closing charges.
Sellers are expected to cover the commission payable to both agents, so you need to factor in that additional cost. If the real estate market is down, it could be more advantageous to delay selling until it improves.
Do your research to determine if the house is likely to appreciate in the next five years or more before looking for buyers. Consider selling only if you can profit around $100,000 or more and invest the sum in a more viable option.
Figure Out the Applicable Capital Gains Tax
When evaluating the asking price for the house, you’ll also take into account the capital gains tax. The IRS expects you to pay a tax on the sale of any property. This tax can be as high as 20% of the profit, depending on your tax bracket.
However, homeowners can claim exclusions of up to $250,000 on the sale. This figure goes up to $500,000 if the taxpayer is married and filing joint tax returns with their spouse.
The only condition is that you should have used the house as a primary residence and have lived in it for a minimum of two out of the last five years.
If you keep the property for at least five years and lease it out, you’ll owe capital gains tax. If you sell before this time frame, you can save on the tax.
The trade-off is that the house could appreciate substantially in value and give you rich returns covering the tax.
However, you should prepare for the possibility that real estate prices could drop, and finding buyers becomes a challenge.
Managing Tenants Remotely Isn’t Easy
When you intend to move out of the city, it can be difficult to manage your property from a remote location.
While you can get a remote notary to enter into a legally binding rental agreement, dealing with day-to-day issues can be a problem. Property managers can provide the necessary services but expect to pay them around 8% to 10% of the monthly rent.
Moving to another location can be a complex decision when you own a house. Work out if you want to rent or sell depending on your current and future financial goals and the return on investment you hope to get. You’ll also factor in the costs and other options that can potentially get you higher earnings.
Some other articles you might find of interest:
Have you ever wondered what the internet of the future looks like?
What is the Metaverse, and Are You Ready For Its Arrival?
Boost your Android Performance with these tips:
Essential Tips to Increase Android’s Performance
Explore more earning opportunities through your writing skills:
Top 10 Affiliate Marketing Programs for Blogs in 2021