Should I Sell or Rent My House? Making the Right Choice

Should you sell your house or rent it out? This is a great question to ask, because it shows you're thinking about how real estate investing can help you achieve your goals. However, the answer isn't as simple as just picking one or the other with the flip of a coin.

Right now, renting is cheaper than buying a home because rents are rising faster than home prices in many markets. In fact, ATTOM forecasts the gross rental yield for single-family homes to rise to 2.16% in 2024, meaning that it might be easier to find potential tenants than buyers for your home.

But that's not your only consideration. Have you always dreamed of owning rental property, or does the idea of becoming a landlord and all that is involved make you cringe?

This article covers reasons why you might choose one option over the other. And, if you do decide to turn your current home into a rental, we'll give you the steps to get started.

Why you should rent your home

If you're considering selling your home, you should first consider the many good reasons there are to keep your property and turn it into a rental.

Generating rental income

You can generate monthly income if you turn your primary residence into a rental property. To see if this is worth it for you, research the local housing market to determine the current monthly rents. Consider whether your house offers appealing amenities that can help you charge the top-end of market rates. Then figure out what your expenses are, such as:

• Mortgage payments
• Property taxes
• Maintenance costs
• Rental preparation costs
• Vacancy periods
• Costs for a property manager, if you decide to hire one

When you add up these costs and subtract them from the potential monthly rents, if the property makes a profit, renting out your home is a viable option.

Take advantage of financial benefits

Besides getting monthly rent, there are other financial benefits to owning a rental property:

• Appreciation: The longer you own the property, the more its value can grow. This increase over time is a key part of building wealth through real estate.
• Tax advantages: The IRS taxes rental income at a lower rate than employment income. You can deduct expenses like property taxes, mortgage interest, and repairs from this income, so you get to keep more of the money you make. Depreciation also offers a tax benefit for rental properties without an out-of-pocket cost.

You need to wait out a slow housing market

Sometimes, people decide to rent their current house because the selling market is slow. If you put your house on the rental market while you wait, you can cover your costs until the market starts to tilt in favor of sellers. You might also consider rent-to-own options, which can appeal to home buyers who might not yet qualify for a mortgage.

You want to keep the property in the family

If you have a personal attachment to your current home, renting it out could be a good option. Instead of selling, you could rent it to your family or other tenants while keeping it in the family long-term. This way, you preserve the property's sentimental value and family connection while also generating a profit from it.

You want to try out being a landlord

If you've ever been curious about owning investment property, this is the perfect time to try. You already know all the details about your current home, so you understand what maintenance and repairs you might encounter. Now, you can try your hand at real estate investing.

There's a few routes you can go down, like short-term or long-term rentals. If you aren't interested in handling operations directly, you can also hire a property management company to do the work for you. This way, the house becomes a truly passive investment.

When selling your home makes sense

Despite the benefits of owning a good rental property, there are also reasons why you might decide to sell your home. Situations where you might want to call a real estate agent include:

You need immediate cash from the sale

If you're in a financial situation where you need a large sum of money quickly, selling might be the best option. Selling your home provides a lump sum that renting out simply can't match in the short term.

Your home is in a high-demand market

If you are currently in a seller's market or a high-demand area, you may want to sell your property to take advantage of the timing. Markets change, and you don't know when conditions might shift. Selling during a peak can maximize your profit and reduce your home's time on the market.

If you sell when demand is high, you're potentially getting the best possible price for your property and avoiding the uncertainty of future market changes.

Your home needs major repairs or renovations

If your home needs significant repairs or renovations to become a suitable rental property, it might not be worth the financial investment. There are many benefits to owning rental properties, but high out-of-pocket costs can eat up your monthly cash flow for years.

Selling could be the better choice if the expense of getting your property rent-ready is too steep. This way, you can avoid tying up your funds in a potentially unprofitable investment.

You don't want the responsibilities of being a landlord

If you run the numbers and find that rental rates don't support hiring a property manager and you're not interested in self-managing the property, selling your home might be the better option.

Owning rentals comes with many responsibilities. You'll have day-to-day operational aspects to handle and need to follow local landlord-tenant regulations. If these responsibilities don't align with your lifestyle or interests, selling can free you from these obligations and the potential stress they might bring.

How to turn your home into a rental property

If you decide that renting is the better option for you, turning your home into an investment property isn't quite as simple as placing a "For Rent" sign in the window. Here are the steps you should follow:

1. Understanding local rental laws and regulations

Start with learning about your local laws and regulations so that you don't accidentally make a mistake that puts you on the wrong side of the law. Look at:

• Tenant's rights and regulations: These laws protect tenants' basic rights, including privacy, quiet enjoyment of the property, and timely repairs.
• Warranty of habitability: You're required to keep the property in livable condition. This includes making sure the plumbing, heating, and electrical systems work. You'll also need to quickly address any health or safety hazards.
• Fair housing practices: It's illegal to discriminate against tenants based on protected characteristics like race, color, national origin, religion, sex, familial status, or disability.
• Security deposits: Learn the rules about how much you can charge, where to keep the deposit, and how quickly you need to return it after a tenant moves out.
• Eviction process: Stay cognizant of the legal reasons for eviction and the proper procedures to follow. This is a tricky area where you don't want to make costly legal mistakes.
• Local licensing or registration: Some areas require landlords to buy a license or register their rental properties. See if this applies to your location and follow any rules regarding inspections or fees.

2. Preparing your home for rental

Once you've researched the local laws and understand your responsibilities, you'll need to get your home ready for renting by doing the following:

• Cleaning and making necessary repairs: Clean the entire property and fix any issues. Make sure that all systems and appliances are working properly.
• Determine rental rates: Research local market rates and rental demand to set a competitive price that covers your costs and gives you positive cash flow.
• List your property: Take photos and create a compelling listing with key details about your property and any standout features.

3. Managing tenants

There's a few tools and practices you'll need to help you manage tenants. The good news is you don't have to do all the heavy lifting. Using property management software like Azibo can help you streamline these tasks. Here's how:

• Rental application: You need a way to collect information on potential renters. Azibo's online rental application makes it easy to gather all the information you need, such as employment, income, and rental history.
• Tenant screening: Azibo's screening reports handle all the background and credit checks so you can choose the best tenants for your property.
• Lease agreements: You can use the platform to create state-specific, legally compliant leases that protect you and your tenants. Once they're ready, everyone can use e-signatures to wrap up this part of the process quickly.
• Rent collection: Azibo simplifies rent collection, from initial deposits to ongoing payments. It automates reminders and late fees, making managing your rental income much simpler.

4. Handling financial considerations

Some of the most important things to set up for handling your finances as a landlord include:

• A separate bank account: Open a dedicated bank account for your rental income and expenses. This ensures that you don't mix your rental business with your personal accounts. It also simplifies all the information you'll need for tax season.
• Financial reporting: You can also use Azibo's platform for all your property accounting and financial management needs. It helps you track income and expenses, generate financial reports, and simplify tax preparation.
• Cash reserves: Set aside funds for unexpected repairs, vacancies, or other property-related expenses. A good rule of thumb is to save 1-3 months of rental income.
• Insurance: You'll need landlord insurance to protect your property from property damage and financial liability. It's also a good idea to require your tenants to get renter's insurance. Azibo offers both policy types, making it easy to set up the coverage you need and make sure your tenants have protection, too.

5. Maintaining your property

Keeping your rental property in good condition helps keep your tenants happy and protects your investment. Here's what you need to focus on:

• Inspections: Do thorough walkthroughs with the tenant at move-in and move-out. Document the property's condition each time, giving you a clear "before" and "after" to compare. This helps you track any changes or damages during the tenancy.
• Maintenance checklist: Develop a schedule for routine upkeep tasks like HVAC servicing, gutter cleaning, and pest control.
• Maintenance requests: Use an online system like Azibo to make it easy for tenants to report issues. Respond quickly to any problems and prevent minor issues from escalating.

Sell my house or rent it out: Which is best?

So, should you sell or rent out your house? As you can see, there's no one-size-fits-all answer. It really comes down to your personal situation, financial goals, and how much landlord responsibility you're willing to take on.

If you're excited about the idea of passive income and building long-term wealth, renting might be the right approach. However, selling could be the way to go if you need quick cash or the thought of dealing with tenants doesn't appeal to you at all.

Either way, real estate can be a powerful tool for reaching your financial goals. Whether you're cashing out or getting into rentals, you're making a smart move by considering all your options.

Should I rent or sell my house? FAQs

Is it more profitable to rent or sell?

The answer depends on market conditions, financial goals, and property location. Renting provides steady income and potential appreciation, while selling offers immediate cash and eliminates management responsibilities. You should evaluate the costs, rental income, and local trends to decide.

What is the 30% rule?

The 30% rule says that you should spend no more than 30% of your gross monthly income on housing expenses, including rent or mortgage payments.

Should I rent out my parent's house or sell it?

This depends on your financial goals, market conditions, and your emotional attachment to the home. Rent if you want steady income and potential appreciation; sell for immediate cash and to avoid management responsibilities.