If you own your current home, you may be ready to upgrade to a larger home to support your growing family, or maybe you are ready to downsize because your children have grown and now your nest is empty. The question is, what do you do with your current home? Should you sell it or does renting it make more sense? Renting it can cover the mortgage and maybe make a little more money each month…but do you want to be a landlord and deal with all that goes with it?
Should I Sell My Home?
Home Value and Costs to Sell
When thinking about selling your home, the first thing to consider is your home’s value. There are several tools you can access online. Automated Valuation Models, or AVMs, are typically offered by lenders and real estate professionals. Look for an AVM that uses a confidence score indicating how close the estimated value is to the actual market value.
If you are wary of online tools, the house price index (HPI) calculator offered by the Federal Housing Financing Agency uses a more technical approach and works well if you have a conventional loan. However, it is not adjusted seasonally or for inflation but can still give you a good idea of how your home has appreciated over time.
A good real estate agent will provide you with a competitive market analysis. This may be one of the most valuable pieces of information you can have when determining the listing price if you decide to sell your home. This information lists comparable properties in terms of square footage, number of bedrooms and bathrooms, lot size, and other important factors.
Once the value of your home is determined, consider the costs associated with selling. Sellers typically spend roughly 8% to 10% of the sale price of the home on fees for the agent commission, transfer tax, title insurance, escrow fees, prorated property taxes, HOA fees, closing costs and attorney’s fees. Some of these may potentially be negotiated with the buyer but should still be considered when making the decision to sell.
Maybe I Should Rent Instead
Renting your current home may sound very attractive to you if you don’t need that equity to purchase your next home. Renting out your home can diversify your investments and income streams. In a best-case scenario, your monthly income will cover your mortgage payment, taxes, landlord insurance, general maintenance and property management fees. However, being a landlord comes with its own challenges that you need to be ready for!
Be sure to consider taxes on the rental income and additional property, advertising and showing the rental property, running background checks and dealing with the possibility of having to evict a tenant. Are you prepared to field tenant calls, handle maintenance and repairs and deal with any emergencies that may come up? Of course you can hire a property management company to take care of these issues for you but make sure you work that cost into your rental fee.
Research rental rates for similar properties in your area to determine what your monthly rental charge could or should be. Just like determining your home’s value, online tools, rental listings and talking to local property management companies can help you with the calculations. During the past several years, the Triangle area has experienced strong growth. Being able to attract new residents has had a positive impact on the North Carolina real estate market. With a strong population growth and a solid economy, the rental demand in North Carolina is continuously increasing. But like any other investment strategy, there is a risk. Does the risk outweigh the potential return? Only you can decide.