You might have made the decision to move to a different city. Maybe it is a new job opportunity, or that you are moving near a good education system to provide to your children. Taking this decision is not as easy as it seems and is accompanies by a set of responsibilities that you ought to take care of. First of the many questions which you need to answer for yourself is whether or not you ought to sell or rent your home after you relocate. Would it be more feasible and beneficial to sell your mortgaged home in lieu of renting it out to tenants? We recommend that you rent your home if you are away for a couple of years.
If you plan to keep mortgage on the home you plan to rent, it is important then to assess the likelihood of being able to score a second mortgage. Understand clearly the rules and requirements that govern a second home mortgage. Even when you are qualified, expect to still pay 20% cash down payment. Additionally, if you have purchased your first home through the Federal Housing Administration (FHA), then you will not be able to hold another mortgage as it is strictly banned.
Luckily, however, if you are not tied to tight mortgage obligations, renting your home while moving to another city imposes big gains. Even if your home is mortgaged, expect these gains if you plan carefully. Make sure to familiarize yourself with the real estate industry and the rental process before you conclude to rent your home. Below we offer reasons why you should rent your home if you are moving to a different city for a few years. This guide will further help you develop your ideas and reach a sound decision.
Your Move Is Not Permanent
We encourage that you rent your home out to tenants if you plan to relocate now but move back to your current location in a few years time. This is because selling your house is accompanied by sale commission and other arduous procedures and costs that you will be indebted to pay. Furthermore, once you decide to move back to the area, finding a house might be more taxing that one would think. Thus, it makes more sense to hold on to your property, and rent it out to keep it vibrant while it generates you rental income. Renting your home versus selling it can offer some comfort to those uncertain of the change. If you are relocating because of a new job, keeping and renting your home will be less stressful. You can always move back if things do not work out.
Prices Are on the Rise
Property prices have been on the rise for the past couple of years. If you decide to sell your house today, you might be missing out on more financial gains in the near future. According to real estate experts’ analysis, the country is facing a shortage in the supply of homes, especially in new builds. This shortage has caused home prices to increase. Homes that are most affordable to first time homebuyers and real estate investors are typically the ones that are short in supply. Because millennials, usually entry-level buyers, are entering real estate, they are opting for rental properties as opposed to owning a home. Consequently, more demand for rental properties is apparent.
Related: How Does the US Housing Market Forecast Look for the Second Half of 2017?
Rent Your Home and Earn Equity
When you rent your home, your tenant will be paying for your monthly mortgage. A tenant is contributing to you earning equity on your home. When you (or the tenant) finish paying mortgage for your home and decide to sell, you will have more equity that you can convert into a lump sum. If you decide to keep renting it out, you will earn more rental income as you grow older and maybe after you retire. This is also good for tax purposes. Since you will still own a home, your home will depreciate, thus allowing you to claim a deduction for depreciation expenses.
Taxes Will Be Deductible
Luckily, when you rent your home, the costs associated with it are tax deductible. You get to write off expenses from mortgage interest to property tax, operating expenses, repairs, and of course depreciation. The amount of income tax you have to pay on rents received will consequently be less, thus incurring more cash to your pocket.
If you only wish to rent your home for a couple of years, we recommend that you rent it for up to three years. You will be exempted from paying capital gains taxes, if you lived in your home for three of the last five years. When you rent your home for more than three years, your home will no longer be considered your primary residence. When you decide to sell a home that is not a primary residence, expect to pay capital gains taxes on any profit. These taxes vary from 0% to 20%, depending on your tax bracket. We therefore conclude and advise that you rent your home for up to three years before selling it in order to be exempted from capital gains taxes.
Related: Should I Sell or Rent Out My House?
You Can Rent Your Home Using Professional Property Management Services
Renting a property while you are away has been made easy today with the rapid advancement of property management companies. More professional property management companies are opening and becoming widely available to landlords. A property manager will completely handle your rental property for you; they will advertise the vacancies, assess tenants, maintain the property, collect rent payments, and secure damage deposits. Their fees start at 6% per month and can be negotiable.
Related: 6 Tips to Help You With Marketing Your Property for Rent
If you are moving to a different city for a few years, we encourage that you rent your home for that time. Not only will tenants pay for your monthly mortgage, they will also keep your home lively and running. As you rent your home, expect to incur ongoing maintenance costs and other expenses. You can, additionally, hire a professional property manager to help you maintain and manage your rental property while you are away. The property manager will certainly lift off some of the burden.