Owning more than one house can be beneficial especially when you know how to get the best out of it. On the other hand, for many of us selling the old house would make much more sense. In real life scenario what happen is, you buy a house. Everything’s going fine, but then you need to move to another property. Maybe by choice or sometimes work is forcing you to relocate. Either way, the big question that raises at that moment is: what to do with the old house?
Sell your old house and move on? Or rent it out? There can be no right or wrong answer but evaluating and understanding your options would help at such times to make a better decision.
What about the cash flow?
It is important to look at how much money is coming in/going out from your property. This is a simple calculation which can be beneficial. When your property is rented out, will it produce a profit after deducting all the expenses like mortgage, taxes, utilities, insurance, repairs, etc. If you see that your property will not make a profit, then it is a safe option to consider selling it.
Return on Investment (ROI)
You should make a rough idea about how much profit you would make if you sell your house in the present market. You should also keep in mind that you will have to deduct agent fees, closing cost, listing fees, etc. in some cases it might be wiser to hold on to the property if it generates positive cash flow and sell it when market value gets higher.
If you see that there will be a profit, consider the return you will receive on your investment. For example, if you could make $120,000 in profit by selling your house and achieve only $1200 per year in cash flow, that’s a 1 percent return on investment. It would make sense to take that $120,000 profit and invest it somewhere else that could produce a higher return.
Long term plan and Taxes
If you decide to hold on to the property, what would it look like in 10 or 20 years’ time? Would the value increase? What about the location, are things improving? Will the average household value decrease or increase? These are the questions that don’t have an accurate answer. However, by doing current trends analysis, you can have a fair idea about the market.
Tax is an important thing to consider while selling or keeping your house for long term. Normally if you sell a real estate and make a profit, you will have to pay capital gains on the scale up to 20%. However, IRS allows homeowners to exclude the scale up to 250,000 for a primary residence and $500,000 for married filing jointly. These numbers can change in time and you should keep in touch with IRS WEBSITE for the latest information.
Handle the tenants
If you come down to the decision to hold onto the property, you should ask yourself; are you willing to be a landlord? Many people don’t want to put up with the idea of being a landlord. It’s because some tenants can be a dream to manage where others can be just as much difficult. On the other hand, you can hand over the management duties to a property management company. This will help to keep your stress at minimum.
If you are in a situation where you need help making the decision to sell or rent a property, relocate, buy your first home or have any Real Estate needs, Contact us today!