Have you decided to move out of your home? Maybe you’re leaving the area or perhaps you’re keeping your eye on another home you’d like to buy. Maybe your life is changing and you’re getting married or the kids are out of the house or it’s time to downsize.
Whatever your reasons, there’s an important decision to be made: Will you sell your home or hold onto the asset and turn it into a Philadelphia rental property?
There is no easy answer, usually. And, you’ll have to weigh several considerations. The best decision depends on your personal financial and investment goals.
You’ll need some customized advice (which we are happy to provide), but to get started, here are some basic things to think about when you’re trying to decide whether it’s better to sell or rent out your property.
Reasons for Selling: You Can Capture Equity and Earn Immediate Money
The sales market has been pretty strong over the last few years, and a lot of people were eager to sell their homes. With prices rising higher, a lot of money was made by homeowners who understood that demand was far higher than supply.
We’ve seen some evidence that the market is peaking and settling into something less frenzied. However, it’s still a lucrative time to sell a home. With interest rates on mortgages rising, you have a smaller pool of buyers, but they’re still out there looking for homes. Your property value is likely high, and you can sell the home, earn the money you’re offered, and walk away from the responsibilities that come with owning a property.
There may be reasons that you’d benefit from earning cash right now. You might have other things that you’d like to do with that money that you could earn from your property. Some homeowners decide it’s better to sell when they’re paying for a child’s college tuition or they need a down payment for their new home. If there are other investment opportunities you’d like to explore, accessing the equity in your home to enable those things will require you to sell it.
Selling delivers a predictable sum of money. If you have enough equity in the home and you know the sales market will deliver the price you want, selling is an easy way to make some money and move on.
Reasons for Selling: Your Home is Aging and Deteriorating
Older homes typically require more maintenance and frequent repairs. That’s something that may encourage you to sell rather than rent your property.
To effectively rent out a home, you need to advertise a property that tenants will be willing to rent. If your home is aging or will need a lot of work before it lands on the rental market, you might find that it’s better to sell.
Tenants have pretty specific needs and desires. The trend now is for stainless appliances and hard surface flooring – even in rental homes. To effectively rent out your home, the property will have to meet the demands of the market and the tenants who are consumers in that market. It might be challenging to rent out a property that will require thousands of dollars in upgrades and renovations just to prepare it for tenant showings and online advertising. You also won’t earn a lot of money on your rental if you’re spending thousands of dollars every year in maintenance and repairs.
Think about whether you’re willing to invest in your property right now. Cosmetic updates and upgrades are almost always necessary before you rent out your home. But, if you also need serious repairs and renovations, it will take some time before you can earn that investment back.
Reasons to Rent: Consistent Rental Income and Long Term ROI
There are many financial benefits to renting out your property. As long as you keep the home occupied with well-qualified tenants, you have the potential to earn consistent and recurring income every month. You’ll also hold onto an asset that is rising in value. This gives you a return on investment (ROI) that’s hard to beat.
There are other financial benefits. Your residents are contributing to your mortgage and the expenses associated with your investment. Eventually, you won’t owe any money on it, and the rent you receive every month will be income. When you hold and rent your property instead of selling it, you’re also earning equity. That means there’s more money to be made when you do sell it eventually.
The rental market is complicated and always shifting in Philadelphia. But, there will always be a high demand for well-maintained homes, and we have always been able to rely on a well-qualified and reliable pool of tenants.
Reasons to Rent: Tax Benefits and Deductions
Think about your decision from the perspective of taxes.
When you sell a home, there may be a capital gains tax on the money you earn.
But with a rental property, you’re going to benefit from a tax perspective. You’ll need to declare your rents as income, but you can also take a lot of deductions. These include:
- Depreciation
- Operating expenses such as advertising costs
- Maintenance costs to keep the home habitable
- Property management and other professional fees
- Mortgage interest
These write-offs help to reduce your overall tax liability.
Partnering with Property Managers
We can tell you that not everyone is cut out to be a landlord. Selling is better for you if you’re emotionally attached to your property and you don’t think you’ll be able to treat it like a business.
If you’ve been thinking about investing in real estate, this might be a good opportunity for you to try it out. It’s easier, and less risky, with the help of a professional Philadelphia property management company.
Let’s continue talking through your decision. If you’re wondering whether to sell or rent out your home, please contact us at Innovate Realty. We work with investors of all experience levels in the greater Philadelphia metro area as well as surrounding suburban areas in Bucks, Camden, Montgomery, Chester, Burlington, and Delaware County, to the Delaware River.
