How to Decide Whether to Lease or Sell a Home

Tuesday, September 16, 2014, 1:00 AM | Leave Comment

Homeowners rarely reside in their first-owned properties forever. Career opportunities, family emergencies and simple changes of heart may prompt short- or long-distance moves. However, depending on current real estate trends, renting rather than selling current homes is sometimes financially savvy.

How to Decide Whether to Rent Out or Sell a Home

Consider these five factors before deciding how to gain capital on non-primary residences.

  1. Down Payments

    Generating rental income on an investment property doesn’t happen overnight – it’s an extended process requiring patience and capital.

    Purchasing new homes requires down payment funds, closing costs and moving incidentals. Without a substantial sale to support the move, personal savings and prior investments fund down payments for future or alternative residences.

    Therefore, current homeowners considering leasing their homes should have enough savings to cover at least 20 percent of their future homes’ list prices, without factoring in the rental incomes they expect to receive.

    Renting out for revenue isn’t a practical or initially likely occurrence, especially for first-time landlords.

  2. Property Management

    Homeowners who decide to lease their properties rather than sell need to have the management skills to maintain, advertise, perform background checks, collect rent and manage leases – all while keeping tenants satisfied in their leased homes.

    Depending on the number of rental units, this is a full-time job requiring exceptional organization skills and ample prior experience, or at least education.

    Further, homeowners moving cross country might want to avoid leasing their homes without trustworthy colleagues or friends nearby to check on rentals in case of emergencies.

  3. Investment Potential

    Listing property for rent doesn’t guarantee profit. Don’t expect to reap monetary rewards by overpricing rental listings.

    Tenants have online resources to compare rental listings throughout any given neighborhood, and apartments with high list prices lacking superior amenities sit on the market much longer.

    In such a competitive rental market, high pricing is common, but leaseholders won’t throw their money away without tangible benefits. Homes in need of upgrading should be priced at their appropriate level.

  4. Better Allocations

    Homeowners with substantial equity in their abodes might benefit from selling and using the money to fund other, non-real estate related investments with lesser risk.

    However, amateur investors should be weary of who and what benefits from their capital.

    Mutual stock funds are advantageous for investors who don’t want to deal with the issues associated with managing properties, such as building improvements, evictions and liabilities.

  5. Current Real Estate Market

    It’s currently a sellers’ market due to an increased number of buyers and a lack of home inventory to support their needs.

    According to Zillow’s Home Value Forecast, home values should appreciate 2.7 percent in the next year. On the other hand, affordability for buyers is still strong in 94 out of 100 large metros in the United States.

    Homeowners planning to wait for greater returns on appreciated home values benefit from holding onto properties and renting them out, given the current competitive leasing market.

    Rents are up 2.8 percent within the last year and steadily increasing.

    Therefore, homeowners can lease their properties at higher amounts until home values fully recuperate before selling.

Whether homeowners sell now or lease their properties before selling in the future, real estate is still a lucrative investment.

This article is provided By Jennifer Riner of Zillow.

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