Selling or Renting Your House - the Pros and Cons

Why rent out your home?

When a tenant pays rent, one of the primary benefits is that the mortgage is being paid on your behalf. Beyond that, the home is earning market equity. In the event that the home is mortgage free, the monthly rent is a source of income.

Diversifying investments

For those who are able, renting out a home provides an additional income stream, and can serve as an investment that generates income when another source might fail. For those who are about to retire, selling the property may pay off.

Renting must cover costs

Rental income must cover all overhead costs: mortgage (principle and interest); property taxes; mortgage insurance premium (if applicable); property and landlord insurance; condo fees (again, if applicable); and a maintenance "fund".

Rental profit and/or loss

All expenses in, and with competitive market-value rent, incoming revenue should cover all of the overhead costs. As it is, revenue is taxable and overhead is deductible. For some, a comfortable break-even scenario may be the best.

Capital gains on rentals

Depending on tax law, a rental property may not fully qualify as a primary residence. It means that there is capital gains tax when the rental property is eventually sold. This may be a dilemma for homeowners who want to avoid this. Beyond the dollars and cents, the debate on selling or renting a house has one other dimension - being a landlord. The role of a landlord can be time-consuming, and often stressful. As such, every individual will handle the demands in a different way, and not everyone is going to manage well. Yes - you can certainly hire a firm to manage the property from A-Z, but this will encroach on the revenue. It's also important to consider the element of risk. Homes appreciate and depreciate - occupancy rates rise and fall - and rents can fluctuate with the real estate market. In the end, it's about doing the homework, crunching the numbers, and getting comfortable with the risk.