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Clients Ask: When Is It Better To Rent Out Your Home Rather Than Selling It?

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This week we received a call regarding the pro’s and con’s of renting out a property rather than putting it on the market for sale. Seeing as this question crops up often, we wanted to address the points every homeowner should consider when deciding whether to rent or sell.

Q. I ‘m moving in with my partner and wondering whether it makes sense to rent out my home. Is it better to hold on to my investment as long as I can, while prices are rising, or to cash out and reinvest somewhere else? Is there a rule of thumb for determining the better financial decision?

A. The first thing to consider when deciding whether to rent or sell, is whether you are prepared to be a landlord. You will be expected to take on the responsibilities and expenses associated with the rental, such as replacing appliances and collecting rent, unless your budget can accommodate the services of a property manager.

As long as you are on board with the idea of managing your property, you can move onto to the next step: researching the rental market in your area.

You can start by browsing rental sites online to get a rough idea of rental prices for your type of property.

Next, consult with a broker for a more personalized estimate of how much rent you could fetch, and to factor in expected vacancy rates. A broker will be equipped to advise you on whether it’s best to rent your property out short term, fully furnished, or to find long-term tenants at a lower price.

Once you have an idea of your expected rental income, consider the monthly expenses associated with your rental property:

  • Mortgage costs
  • Property Taxes
  • Maintenance costs (estimate: 1% of the property’s value per year)
  • Property management fees if relevant
  • Income tax. If your property generates positive cash flow,  the passive income will be added to your income, which will be taxed in accordance to your income tax bracket.
  • Homeowner’s Insurance

You can use our Rental Property ROI Calculator to determine annual and 5-year ROI based on your expenses and expected rental income.

Then, request a comparative market analysis to find out your property’s current market value. Most real estate professionals will offer free evaluations and consultations in their services for prospective sellers.

Finally, compare your estimated profit for the number of years you anticipate renting out the house, to other potential investment strategies.

When you should rent out your home

  • If you bought your home less than 4 years ago, you are unlikely to make a profit on its sale, or even to cover your selling costs. In some cases, it could make sense to rent out your home until appreciation catches up with your expenses.
  • If you live in an area where rental prices are high, and vacancy rates are low.
  • If your maintenance costs are low.
  • If you have the time to manage your rental property, or can absorb the costs of a property manager.
  • If you live in a developing area where prices are speculated to skyrocket over the coming years.
  • If your rental will generate positive cash flow.
  • If your savings account can absorb the maintenance costs of your primary residence and your rental.

When you should sell

  • If you don’t have enough money saved up to absorb a month of vacancy, or to pay for emergency repairs
  • If your monthly housing costs vastly exceed the rent you could fetch.
  • If you don’t have the time to manage your rental, and can’t afford a property manager.
  • If your area has low rental prices or high vacancy rates.
  • If you have owned your home for more than 5 years, and have accumulated a significant amount of equity.
  • If the the real estate market currently offers better investment opportunities.

So you’ve decided to sell…what next? 

If the signs point to selling, you can consider reinvesting your equity into other investment opportunities offered by Montreal’s real estate market.

To find hot deals for investors (properties listed under market value, repossessions, etc), sign up for our Deal of the Week mailing list.

Consider buying a multiplex to maximize your passive income. You can find multiplex deals within your budget by setting up a property alert, or by browsing our monthly selections of revenue property opportunities.

For an easy, low-maintenance investment consider buying a condominium. 

Read up on local investment strategies in our free E-book for Investors


This article, Clients Ask: When Is It Better To Rent Out Your Home Rather Than Selling It?, appeared first on Shupilov Real Estate.

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