With the on-going economic crunch, more and more homeowners are considering selling their homes or have them rented out. In most instances, selling your home means moving to a different place. Nonetheless, for various reasons, many people opt to rent out their homes than selling them.
In many instances, people are aware that they have to leave their homes for a year or even two while they pursue a degree or take a new job. There are also cases when a seller simply cannot sell at a price considered acceptable, so he or she prefers to hang on to the home until the market prices pick up. Other owners just want to keep their homes until they are certain that they are not coming back. Whatever the reason, it is important to have a healthy attitude of the financial details when weighing your decision. For most homeowners renting out a home is not a good option since they need to sell to be able to have enough funds to purchase a new home.
Below are some pros and cons when you rent out your home:
Renting Out Pros:
You can keep your home as it appreciates.
Tax breaks could offset your income tax on rent.
Rent income covers taxes, mortgage and insurance payments.
Renting Out Cons:
Great risk of damage on your property by your renters.
The income could be taxed on the whole profit when you choose to sell your home.
Risk of financial or legal problems with tenants.
You probably know that the government provides generous tax benefits for those living in the home for two years out of five. Married couples who file jointly could enjoy up to $500,000 in capital gains tax-free while singles can get up to $250,000 tax-free gains. Nonetheless, the great news is that when renting out your home, you could still be eligible for these tax breaks if you have lived in your home for two years out of the five. When you rent out your home, you can minus any out-of-pocket expenses that are related to owning and managing your property. This includes mortgage interest payments, property taxes and other expenses such as broker or advertising fees, repair costs, maintenance expenses like cleaning services, utilities and management company fees, liability insurance, fire and travel and local transportation costs incurred in maintaining the property and the rent collection.
Keep in mind that to become a landlord is not for the faint hearted. As an absentee landlord, it would be hard for you unless you hire someone. If you are willing to part ten percent of your income each month, then you could consider hiring a property management company to do it.
Look at your home in an investor’s point of view. If you plan or want to return to the same place several years from now, you could be priced out of the market if you sell your property, thus it would be more sensible to rent out your home than selling it.
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