Here’s what to consider if you’re deciding between renting and selling.

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So you have to move and are trying to decide whether to sell your home or rent it out and become a first-time real estate investor. Which is the better option in your case? There are several factors to consider before making a decision.

If you’re leaning toward selling, make sure the price you can list your home at makes sense. In other words, know whether you’ll be making money on the sale or not. To determine this for our clients, we provide them a comparative market analysis (CMA) that looks at the recent sales of other nearby homes. We also create a net sheet that analyzes the various costs you’d have to cover (closing costs, commission, etc.).

Renting can be a great way to build wealth over time, but not everyone has the stomach for it; you, too, may flinch at the prospect of constantly having to collect rent and answer calls from tenants when issues arise. Then again, you can always hire a professional to manage the property for you.

Whichever option is right for you depends on your situation.

In any case, here are a few other factors you should be aware of before deciding to rent:

  1. Principal reduction. As you’re collecting rent and making your monthly mortgage payment, the amount you owe on your mortgage continues to decrease, which builds your equity.
  2. Appreciation. This is how much your home increases in value over time, whether it’s through inflation or market conditions in general.
  3. Monthly cash flow. This is the amount you make after paying your mortgage and other expenses.
  4. Tax advantages. Through depreciation, you can offset the income you make from your rental property. Also, when you sell it, you can do a 1031 exchange and use the proceeds you would’ve had to pay as capital gains to buy another property.

The bottom line is this: Whichever option is right for you depends on your situation, so remember to consider these variables before choosing to sell and cash out or build wealth as an investor.

If you have questions about this or any real estate topic, feel free to call or email me. I’d love to speak with you.

Posted by Justin Cory on
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