Making the decision to sell or lease your home does not come lightly as both options can come with benefits and drawbacks. Depending on your financial goals, one decision might be better than the other. Often, people who choose to lease their homes rather than selling them, are looking to create financial security through property investments. Selling your home can be a great option if you are looking to make a profit and help towards a down payment on a new home while also paying off other debts. If you are interested in leasing your home consider the pros and cons listed below to see if it is in your best financial interest.
One of the biggest reasons someone chooses to lease out their home is to secure an extra source of income. So long as the rent charged each month is higher than the mortgage plus enough to cover unexpected incidentals, leasing your home out could create financial stability for your future. Ultimately, as an investor, you could have tenants completely pay off the mortgage of your home. Once the home is paid off, anyone who leases the home would be paying you directly. Many investors choose to lease out multiple properties as it can help secure their retirement plans and often help them retire sooner.
The housing market has ups and downs as any other industry. Leasing your home out during a dip in the market rather than selling it could be financially beneficial. When the housing market is down, homeowners often have to sell their homes for less than market value, or short sales or bankruptcies can occur. Instead of risking losing money from the home you have invested in, leasing it out could help you avoid this tragedy. Choosing to lease your home while waiting for the housing market to level out could be extremely financially beneficial for you.
The value of your property will likely grow over time. Even with the smallest of upgrades, the value of your home can increase over time all while your tenants are paying the mortgage. While the growth in property value depends on the market and demand in your specific region, it is possible for your home value to increase significantly in a matter of a few years. When deciding whether or not to sell or lease your home, you must consider the long-term market value of your home. Sometimes it is in your best financial interest to sell while other times leasing can be the better option for future financial stability.
One of the great things about leasing your home is knowing that there are companies who specialize in property management, making your investment process that much easier. Property management groups specialize in managing tenants, scheduling repairs, valuating the home for accurate rental price based on the market and other rentals in your specific area, and so much more. Having a property management group take care of your investment in full gives you the opportunity to reap the rewards without all of the fuss. Often, property management groups offer discounts for investors with multiple properties as well.
Landlords can take advantage of quite a few tax deductions. Some of those tax deductions include:
(Connect with your Tax Professional to see if you will be able to benefit from these deductions)
It is no secret that the housing market fluctuates and homes can depreciate in value depending on a number of different factors. Some properties are not meant to be long-term investments and will yield little financial gain if any. It is important to know the market, potential long-term value, region, and demand before deciding to make your property a rental property.
While investing can create long-term financial stability, it is not always immediate. If you are looking for a quick income, leasing may not be your best option as it can take time for your property to become a substantial source of income. The less you owe on the property, the faster it becomes profitable. If this is your first rental property, it may take time for your tenants to pay down the mortgage enough for you to see a significant difference.
Rent rates fluctuate depending on the market demand which means you may have months or years where your rent rate is much lower than originally anticipated. You also have to factor in months where your home is not being leased out, either due to repairs being done, low demand, or other unforeseen issues that may occur. If you cannot afford to pay the mortgage on your own without tenants for various periods of time, leasing may not be the best option.
The upkeep on rentals can be unexpected and it is no secret that not all tenants are going to be great. Being a landlord comes with major responsibilities and requires a lot of time and energy and is not for everyone. If you do not have the time or ability to take care of the upkeep of a rental; leasing your home may not be in your best interest.
It is no secret that making the decision to lease your home can be significant as it can help secure a better future for you financially. As you consider selling or leasing your home, consider both the pros and cons listed above. Investing in a property rental can be a great adventure with the potential for growth as you pave your way. If you have more questions on investment properties and knowing when it is the best time to sell vs lease, Capstone Realty is here to help. As leading Phoenix REALTORS®, property managers, and investors ourselves, we know and understand this industry. Our team is dedicated to educating those who are interested in property investments.