Being a landlord isn't without its perks.
When you need to sell your house, the last thing that you might consider is renting it out instead. But that could be the right solution to some fairly common problems.
In a perfect world, you could find a great agent, list your home for sale and soon be on your way to the next phase of your life. But most home sales aren't perfect, and sometimes that means a house won't sell in a reasonable amount of time. Or maybe the house value is lower than you'd hoped and selling now could mean taking a loss.
If the market is slow or property value is low, you might not be stuck after all. You also have the option of becoming a landlord, and it's not as scary as it might sound.
Renting your home gives you the freedom to keep moving forward with your own plans.
Renting Might Make Perfect Sense
Job transfers are one of the most common reasons people sell their primary residence and move to a new home. But where a new job probably begins on a certain date, there's no way to know when your home will sell. If you rent your home, the process should move ahead a lot faster.
Where the market is slow, listed homes can sit in limbo for months or longer. And that makes for distressed property. In many such cases, sellers have no real option besides reducing the price to attract buyers. And if the market in your area has taken an overall value hit, selling might not be profitable at all. Renting your home could allow you some breathing room to wait for more favorable selling conditions.
Renting Could be a Profitable Choice
Aside from giving you time, renting can also be a stream of income. With the rent amount set higher than your mortgage payment, which is the norm, you'll have your mortgage covered and then some.
Renting can also come with some attractive tax breaks. Rental property depreciation gives you a tax deduction that could equal a tax shelter for as much as $25,000 of your income, according to CBS News. There are different ways of determining depreciation, and the IRS has different forms for this purpose.
Being a landlord also means you're in charge of repairs from someone else's damage.
Potential Drawbacks to Think About
The IRS isn't keen on giving tax breaks for no reason. When a home is occupied by someone besides the owner, there's always the risk of property damage and general depreciation. As the landlord, you become responsible for repairs except in extreme cases where the damage is worthy of a lawsuit.
Another potential problem with renting is the capital gains tax when you're ready to sell. CBS News explains that if you lived in the home for at least two years and then rented it for fewer than three, $500,000 of your profit from the sale could be exempt from capital gains tax. But the depreciation deductions that you took in previous years would be taxed when you sell.
The role of landlord doesn't appeal to everyone. But if you're stuck between a rock and a hard place with no way to sell your home under the terms that you need, it might be a good alternative with enough incentives to make it worthwhile.
Learning the value of your home is an important step in both selling and renting. And it's not as difficult as you might think. At eppraisal, we have the tools that help you understand what your home is worth and how it stacks up to others in the area. When you're ready to take that first step, click here for your free property valuation.