Should You Sell or Rent Your Old Property?

As an existing homeowner, you’re familiar with the process of buying a property. Looking for a new house is probably as exciting as it was to look for your first home purchase. But now, you have additional considerations when house hunting in planning the course for your future. Namely, you’ll need to decide whether you want to sell your old house or rent it to tenants.

Is renting or selling the better strategy? And how can you decide which is best for you?

Selling vs. Renting

Selling a property is pretty simple. You’ll hire a real estate agent, stage the home, list it on various platforms, and wait for an offer to come in. Hopefully, you’ll get a quick bid that looks attractive, and you can move forward with the sale. After paying commissions, closing costs, and other fees, you’ll get to keep the remainder of the proceeds as a profit.

Renting, by contrast, requires more of an active role. You’ll prepare the house for renters and attempt to find tenants who will take good care of the property and pay rent on time. The hope is you’ll find tenants who will pay more in rent than you’re currently paying in monthly expenses for the property, resulting in a monthly profit. 

Then, in the future, you’ll always have the option to sell the property. You can also hire a property management firm to take care of the day-to-day responsibilities of property management, such as collecting rent, screening tenants, fixing issues, and resolving conflicts.

Factors to Consider

As you can see, there are advantages and disadvantages to renting and selling, so it’s difficult to say that one is strictly better than the other. To make the right decision, you’ll need to consider the following variables:

The state of the real estate market

First, think about the state of the real estate market. How have prices changed in your neighborhood in the past few years? How are they set to continue changing in the future? Is it a sellers’ market or a buyers’ market? If the local real estate market is at its peak, this may be a great opportunity to cash in on your property appreciation. If you suspect that prices will continue to increase in the future, or that the neighborhood will improve in significant ways, keeping the property and renting it may be better.

Rental prices in the area

Before making your decision, make sure you take a look at local rental prices. How much are people paying to rent houses like yours? Is this significantly more than what you’re currently paying on your mortgage and other expenses? The higher the rent price, especially in relation to your expenses, the more you should lean toward renting.

Your financial position

What are your personal finances like? If you’re barely scraping by, and you don’t have enough money to secure a down payment on your new house, selling the home may be your only realistic option. But if you have enough for a down payment and a sizable emergency fund, you may be able to afford the renovations and preparatory steps necessary to convert your house into a rental property. You’ll also need to think about the cost of your new house and what your monthly payments on it will be.

Your availability

Do you have the time and patience to take care of a rental property? Managing a rental property is frequently described as a source of passive income, implying that you don’t have to do much work. But you’ll likely spend many hours every month maintaining the property and managing your tenants. You can always hire a property manager to mitigate this, but you’ll still be personally responsible for some things.

Your risk profile

How much risk are you willing to take on? Even in a competitive neighborhood, there’s no guarantee that your rental property will be profitable or successful. If you’re especially risk averse, you’re probably better off selling the property.

Physical proximity

You may also want to consider your physical proximity; in other words, how far are you moving from your old property? Being close to your old house makes it easy to stop over and take care of issues if and when they arise. If you’re moving far away, a property manager can help you tend to the property – but you won’t have your eyes on it nearly as much.

In many cases, renting is better than selling, because you’ll have the potential to make much more money in the long term. But you may not be in a financial position to carry this out and you may not want the extra risk or time requirements. Consider your unique position carefully before making the final call.