Should You Rent Your House or Sell it?

Should You Rent Your House or Sell it?

You are moving away from your home for some obvious reason. It could be due to your work, or you have bought a new home, or you are moving to a different country. Whatever be the reason, the immediate question is what to do with your current home? There are only 3 things that you can do with it.

  1. Rent it
  2. Sell it
  3. Keep it unoccupied

In 9 out of 10 cases, option 3 is not viable due to financial constraints. If you are moving out only for a short period of time then keeping the home unoccupied suits you. Whether to rent it or sell it is a million dollar question and there is no straightforward answer to it. This article will help you in taking the right decision which is appropriate for your home. Now let us look at some of the factors which will determine your decision making.

1. Buying a Second Home

If you’re planning to buy a second home then it is wiser to sell your first home and use the capital gains to purchase the 2nd property and thus avoiding tax.

2. Rent Vs EMI

If you rent this property, will the rental income good enough to cover a major part of the EMI? In a country like India where the rental income is just 3-4% and the home loan interest is 10-12%, the rental income should be good enough to cover around 70% of your EMI amount. If it does, then renting is a better option.

3. Cost of Renting

Most people don’t understand the cost of renting; they assume that the cost is only going to be EMIs. This is untrue. You should also account for other costs like

Rent Your House

  • EMI
  • Property Tax
  • Insurance
  • Water Tax
  • Income tax on the rental income
  • Cost of acquiring the tenants [advertisement/brokerage]
  • Repairs and Replacement

Consider all these costs and compare it to your rental income, if the math looks good, then go for it, else consider selling it.

4. ROI

If you’re planning to sell the property, arrive at an appropriate figure that you can quote for the house. Compare it with your purchase cost and see what kind of profit you are making and in how many years. If you are getting a huge return on your investment, then blindly sell it. Else wait for the property price to increase and then sell it in the future.

5. Can you Handle Tenants?

If you decide to rent the home, aside from rental income the most important factor is the tenants themselves. Tenants might give you an infinite number of problems which you can’t anticipate in advance. Some of the problems are

  • Delay in Rental Payments
  • Partying in nights
  • Keep the house dirty
  • Creating ruckus with neighbours
  • involve in some criminal activity
  • Damaging your property

These are just a few of the problems that may arise. Ask yourself whether you have the courage and time to handle these issues, if the answer is no, then forget the idea of renting it out.

The factors mentioned above are purely generic and analytics based, it might vary from person to person depending on their financial situation and health. Consider your incomes and liabilities and then take a well-educated decision to sell or rent your property.

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