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I was considering a scenario that would have me moving away for a few years and then coming back. This led me to the question about whether it would be better for me to sell my house and then buy a new one when I decided to move back, or to rent it out for the few years that I am away. I would not necessarily be doing this to generate income but I would be doing this to save money, namely the commision paid to the real estate agent in selling and buying houses. It also saves the hassle of selling and of looking for a new house when I came back. But there is the added hassle of being a landlord and the risk involved. In my research there came up a few important matters to consider. First is financial, whether or not you can rent out the property for a price that makes sense to cover your expenses on the property, namely the mortgage, taxes, and general maintenance. If possible you want to have a positive cashflow, but the rents in your area may not be high enough to cover those expenses. Second is the fact that you will be becoming a landlord. So unless you are renting the house out to someone you know (which would be the option I would try to do), then you have to be wary of a tenant skipping out on you, destroying property, or any other bad things that might happen. You have to decide who is in charge of fixing things for example if a water pipe bursts etc. Thirdly, is another financial issue abit more complex than just straight cash flow. Since I am in Canada, the tax implications are much different than in the U.S. so I won't go into all the details. But other considerations would be the increase (or decrease) in house prices that you expect to occur in the years that you are renting it out, how will you be paying for new housing since alot of money is tied up in the rental house, could you be using that tied up money in a better investment. Here's a table I found that has the pro's and cons of selling or renting out your house: Renting | Pros | Cons | | · Keep property as it appreciates | · Possible damages to property | | · Tax-breaks could offset income tax on rent | · Could be taxed on the whole profit if you sell | | · Rent income covers mortgage, taxes and insurance payments | · Potential legal or financial problems with tenants | Selling | | Pros | Cons | | · Likely tax-free capital gain | · Could be priced out of market if you want to return | | · Frees up equity that could be invested or rolled into new home | · Lose potential property appreciation | | · Simplicity: Only one house to maintain | · Could have to sell at a bad time for real-estate market in your area |
As for determinig how much to rent your house out for, I just went to Craigslist and looked for comparable houses in my neighborhood. This should give you a ball park figure to start out with. You can also go with a property management agency that can help you fix a rental price as well as a tenant and take care of maintenance issues. So, overall, renting out one's home is a somewhat complicated affair financially and you really have to evaluate your specific reasons for doing so. In my case maybe I would not mind renting it out with a small negative cash flow to someone I know who will also do the maintenance just to avoid the hassle of selling and then rebuying. The appreciation in the house should negate the loss of immediate revenue. If you are trying to rent your house as a pure investment, then it is important to look very closely at the tax detail implications that apply to you.
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