It’s a dilemma many home owners face – it’s time to upgrade the family home and you need to toss up the benefits between renting out your current property or selling it.
There are plenty of factors that come into play which may be beneficial for some and not for others; things like age, financial situations, ongoing maintenance requirements, capital and equity can all swing the decision one way or the other.
Because this situation is so individual to every home owner, we’ve put together a list of five factors to consider when deciding whether to rent or sell your current primary place of residence (PPOR).
There are of course many other factors, but these five will get you started.
1. What makes financial sense?
When it comes to deciding whether to rent out or sell your current PPOR, your biggest decision will be based on what makes more financial sense.
You need to consider whether you can afford the maintenance on two properties, whether you can afford the various taxes and bills on both properties, and what happens if the rental is vacant for a period of time.
You should be sitting down and making a budget of what an investment property could cost (including management fees, accountancy fees, maintenance costs, advertising fees and more) as well as what your new home will cost.
Work out your income in comparison to these expenses (including any loans) and you will get a good idea of whether you are better off selling, or whether you can hold the property as an investment.
2. Will emotions come into play?
This one is generally a major issue for many home owners who are looking to turn their PPOR into an investment, but it can also be an issue when selling.
You’ve generally spent years looking after your property, making memories with your loved ones and getting your home exactly how you want it.
To then hand that over to someone else to live in as a rental can be tough – no one is going to look after your home quite like you would, and you need to be prepared that things may get broken or the garden may not look as good as you’d like.
If you feel that the emotional side of an investment property may be an issue for you, it may be more beneficial for you to sell.
While this will come with its own emotional turmoil, you will know that you aren’t having to pay for any damages or maintenance.
3. Is there market demand?
Market demand can be a very big indicator of whether you are better off selling or turning your home into an investment.
If there is no rental demand for a five-bedroom house on the outskirts of a small city, you may be better off selling.
However, if you have a three-bedroom apartment right on the beachfront, for example, you may find there is plenty of market demand which makes turning the property into an investment a better option.
4. Is there a chance for growth?
Growth is always something that investment owners are looking for when purchasing a property.
When you are tossing up what to do with your current PPOR, you need to consider whether the area is already at the top of the market or whether there is room for growth.
If prices are already at the top of the market or getting that way, it may be more beneficial to put the property on the market rather than using it as an investment.
5. Do you have time to be a landlord?
- Are you moving for a change of lifestyle, new job or to set off travelling?
- If so, will you have the time to be a landlord, even with the assistance of a property manager?
- Will you have the time to keep an eye on emails for maintenance, keep track of spending and maintenance and to keep up to date with all the paperwork needed for end of financial year?
Carefully consider whether you have the time, or even want to spend time and effort being a landlord.
While there is plenty more to think about including tax implications and capital gains, deciding whether to rent your current PPOR or sell it before moving on can be quite a difficult decision.
It’s worth having a chat to your accountant to go through the financial side of things to work out which option is better for you in the long run.
4 More Factors to Consider
When deciding whether to rent or sell your property, it’s crucial to consider your financial goals, personal circumstances, and the local real estate market conditions. Some key factors to evaluate include:
1. Cash flow needs
If you require a steady stream of income, renting out your property may be a better option. However, if you need a lump sum of cash, selling your property could be more suitable.
2. Investment strategy
If you’re looking to build a long-term investment portfolio, renting out your property can provide a source of passive income and potential capital appreciation. On the other hand, selling your property can free up capital for other investments.
3. Market conditions
Understanding the current real estate market conditions is essential. In a strong seller’s market, selling your property may be more advantageous, while in a buyer’s market, renting out your property could be a better option.
4. Personal circumstances
Your personal circumstances, such as retirement plans, relocation needs, or family situation, can influence your decision to rent or sell.
FAQs on Whether to Rent or Sell Your Property
What are the advantages of renting out a property?
Renting out a property can provide a steady stream of passive income, allowing you to generate revenue from your investment. Additionally, you retain ownership of the property, which can appreciate in value over time.
What are the disadvantages of renting out a property?
Renting out a property comes with responsibilities such as managing tenants, dealing with maintenance issues, and navigating landlord-tenant laws. There is also the risk of vacancies, which can impact your cash flow.
What are the benefits of selling a property?
Selling a property can provide a lump sum of cash, which can be used for various purposes, such as investing in a new property, paying off debts, or funding retirement. Additionally, you eliminate the responsibilities and costs associated with property ownership.
What are the drawbacks of selling a property?
When you sell a property, you lose the potential for future capital appreciation and rental income. Additionally, you may be subject to capital gains tax, depending on your individual circumstances.
