Are you planning to relocate to a new home and you don’t know whether you should rent your existing place, or put it up on the market? Check out the below questions to help you decide.
- Would holding the property create a financial strain?
There are 3 main financial impacts to owning a rental property. First is occupancy. There is a chance that it could take longer than anticipated to find a renter. If you are able to support the property for a few months without any rental income then this shouldn’t be an issue. The second is a non paying tenant, but again if you can support the property for a few months without income then this is not a problem. The last impact is a major repair like the roof or HVAC. If the estimated rent you will receive does not allow you to also save for repairs then you may run into an issue later on. A good rule of thumb is to set aside 1% of the property value each year for maintenance costs each year. So if your property is valued at $120,000.00 you would want to set aside $1,200 per year or $120 per month. This rule gives you a rough estimate, but there are always exceptions.
- Would the recent sales prices cover any mortgages on the property?
If the home prices in your area have dropped since you purchased your home selling may not be the best option. Prior to selling your home you should request the mortgage payoff amount from your lender. This number may be different from what you expected as some lenders charge fees for an early payoff. If the recent sales of similar homes wouldn’t cover the cost of closing and the mortgage payoff you may want to consider renting until the prices recover. Check out our seller closing cost calculator for an estimate. If you don’t believe prices will recover you can consider a short sale, or renting the home and holding it as a long term investment.
- How long have you owned the home?
The amount of time you have owned the home, and lived in it can greatly affect the amount of taxes owed on profits. If you have owned the home for less than 1 year any gains from the sale will be taxed as a short term capital gain. This is the same rate as your ordinary income. If you sell after holding the home for greater than one year any gains will be taxed as long term capital gains. This rate caps out at 20%. If you have owned and lived in the home for 2 of the past 5 years you will qualify for the home sale tax exclusion. This allows you to exclude up to $250,000.00 profit from the sale of your home if filing single, or up to $500,000.00 if filing joint.
Thanks for reading and feel free to post any questions below in the comments.
About the Authors:
Jeff and Smruthi are husband and wife Real Estate Team proudly serving Jacksonville and surrounding. They offer homebuyers closing cost assistance allowing them to save. For those looking to sell; AgentChase provides competitive flat fee listing options while providing unbeatable service.
Are you looking to buy or sell? Contact us today at 904-513-8575 or send us an email at different@agentchase.com