Should I Sell My House or Rent It Out?

Selling vs. Renting: Factors to Consider

Chances are your home is your biggest financial asset. You could leverage that by selling it to the highest bidder or keeping it as an investment property. Here are some important things to think about before choosing a path forward.

Your Financial Preferences

If you sell your home, you'll have to cover closing costs, property taxes and your real estate agent's fee. The total generally ranges from 10% to 15% of the home's value.

Renting out your home has costs of its own, however. You'll be responsible for regular maintenance, repairs, landscaping and other upkeep. That might mean hiring a property manager to do the heavy lifting for you.

The goal of renting is to recoup these costs and ultimately turn a profit by securing a steady tenant. But finding and screening potential tenants also comes at a cost. As a landlord, you'll need cash on hand in case a pipe bursts or the A/C goes out.

Your Housing Plans

Do you want the option to come back to the home at some point? For example, if you're taking a year off to travel abroad and don't want to deal with the hassle of selling your home, finding a renter could provide steady income in the meantime—and your home will be waiting for you when the rental lease ends.

If you feel ready to part ways with your current home, consider where you plan on living after you move out. If you're relocating somewhere that isn't nearby, you might find it difficult to maintain a rental property from afar.

Your Local Housing Market

Whether it's a buyer's or seller's market is another key factor. You may have trouble fetching an attractive sale price if:

• There's a high inventory of available homes in your area
• Comparable homes aren't selling quickly
• Home prices are holding steady or declining
• Mortgage rates are high, leading to increased borrowing costs for buyers

Some or all of these conditions could impact your ability to make a profit on a home sale. That may motivate you to temporarily take on a renter until the market becomes more favorable to sellers.

Your Personal Preferences

You may like the idea of keeping a rental property as an investment, and are OK with the responsibility of being a landlord. Having passive income from a rental property could help grow your net worth, bolster your retirement savings and even allow you to retire early.

But maintaining a rental property isn't for everyone. The responsibility and cost can be significant, especially if the home needs repairs or renovations, or if you end up with problematic tenants. In this case, you might decide to sell your home and invest in other ways—like supercharging your retirement accounts or a brokerage account.

When to Sell Your House

Deciding whether to sell your property or rent it out involves a lot of moving parts, but walking away from your home may be your best option if:

• You need a lump sum of cash to buy another home. You may need the equity from your first home to secure a mortgage on a new house. Otherwise, you might have a hard time qualifying for a loan.
• The rental market is weak. If rental prices are on the decline in your area or there's a high inventory of available rentals, you might struggle to find a quality tenant who can pay enough in rent to cover your housing expenses.
• There's a strong seller's market. If you're in a hot housing market, selling might lead to a nice profit—and you could miss out if home values decline in the future. The caveat is that it's impossible to predict future market trends.

When to Rent Out Your House

Selling your home isn't always the best move financially or for your lifestyle. Renting it out might be your best bet if you relate to any of the following scenarios:

• Your housing plans are unclear. You might plan on returning to the home in the future or aren't 100% certain you want to sell to begin with. Keeping your home as a rental can give you some flexibility as you decide how you want to move forward.
• The home has potential for strong rental cash flow. If your local rental market is strong and you need passive income, your home could serve as a great investment.
• You have sufficient cash savings. Again, managing a rental property has its costs. Having a solid emergency fund can help you cover surprise repairs and regular maintenance costs without accumulating new debt.

How to Sell Your House

If you've decided that selling your home makes the most sense, you can take the following steps to close the deal:

1. Make any necessary repairs or upgrades. This can help you increase your home's value and get better offers. If you'd rather not take on the cost of renovations, you could agree to a lower price. Repairing major issues with your home before putting it on the market could help you expand your pool of potential buyers.
2. Find a real estate agent. This may be someone you've worked with in the past or a new agent that came recommended. Either way, you'll want someone who has a strong track record and understands your local market.
3. Choose a listing price. Your real estate agent can look at sale prices of comparable homes that have recently sold nearby. Getting a home appraisal can also help you clarify its market value.
4. Prep your home. Prepare to clean up, declutter and improve your curb appeal. That might involve refreshing the landscaping or replacing your mailbox. You'll also want to work with your real estate agent to stage your home for open houses.
5. Compare offers and negotiate. You'll ultimately want a buyer who has a preapproval letter from a lender and is ready to move forward with financing. You might also need to provide a seller's disclosure form, which discloses any issues that could affect the property's value.
6. Close on the sale. Once you've accepted an offer, the buyer will likely arrange an appraisal and home inspection, then finalize their loan. If you've agreed to make any repairs, you can do that before heading to the closing table to finalize the transaction.

Learn more: How to Sell Your House: A Step-by-Step Guide

How to Rent Out Your House

If renting out your home feels like the better option, you'll need to take steps to find a tenant and draw up a rental agreement:

1. Get a feel for the rental market. Research local rental prices for similar properties in your area and consider your mortgage payment, property taxes and insurance costs. You'll also want to factor in anything that adds extra value to your home, such as having a pool or being in a gated community.
2. Check your homeowners insurance coverage. If a renter is going to be living in your home, be sure you have enough liability coverage to protect you if they get hurt on your property.
3. Prepare your home for a tenant. Remove your furniture and personal belongings, and consider painting the walls a neutral color. You'll also want to deep clean the home to make it attractive to potential tenants. If you need to make any repairs or upgrades, now is the time.
4. Decide how you'll maintain the home. Will you do it yourself or bring on a property manager? If you decide to outsource the task, do your homework to find a property management company that has strong customer ratings. Costs vary but can equal anywhere from 8% to 12% of the monthly rent, according to Apartments.com. There may also be extra fees to account for.
5. Find a tenant. You can use online platforms like Zillow or Rent.com to advertise your home. Be sure to include clear, high-quality photos and descriptions. If you hear from an interested renter who sounds promising, you can use a screening service to run a background check and pull their credit.
6. Draw up a lease. Once you've found a qualified tenant, you'll put together a contract laying out the terms and conditions of the rental agreement. That includes the monthly rent amount, payment due date and when the lease ends. After that, you'll collect their security deposit before they move in.

Learn more: How to Rent Out Your Home and Buy Another

The Bottom Line

If you're deciding whether to sell your home or keep it as a rental property, it's wise to weigh the pros and cons of both options. The right choice for you will depend largely on your financial situation and if you're keen on being a landlord. If you do choose to rent out your home, finding a quality tenant is essential.