What are the advantages of renting your home or using it as an STR (short-term vacation rental)?
- You’ll build your investment portfolio. As the data show, owning a home(s) has long-term benefits, helping you Build Prosperity over time.
- You’ll earn passive income. Income is generated when the rent you charge is higher than the monthly cost—mortgage payment, property tax, maintenance, and other expenses—of owning the house.
- You could mitigate loss. Instead of selling a home in an unfavorable market, you might choose to rent it and sell later, potentially at a higher price.
- You’ll have a fallback plan. If you ever need to return to your old neighborhood, you won’t have to buy a house; you can move into your rental home once it’s vacant.
Of course, renting your home, whether short-term or long-term, is an added responsibility. You’ll need to keep your house clean and in good condition, advertise your listing and screen tenants, and respond promptly, especially in the case of an STR where guests may need more attention. If you’re a landlord to long-term tenants, you may have to go through the complexities of the eviction process in a worst-case scenario.
Landlords and STR hosts will need to have cash on hand to cover unforeseen expenses. If a pipe bursts, you’ll have to repair it right away. It’s also possible that a property may sit vacant for months in between tenants. Many landlords opt to hire property managers, with fees ranging from 8 to 12 percent of the monthly rent.
What if you want to stay in your current home and purchase a rental property as an investment? In this case, you don’t necessarily need to have your current mortgage paid off to apply for an Investment Loan. You might also be able to leverage your home’s equity to use as a down payment if you qualify.
Should I sell or rent my house? Request a personalized assessment to find answers.
What are the advantages of selling your home instead of renting it?
- You won’t have to worry about two properties. Maybe maintenance on one home is more than enough for you, in which case you’d be better off avoiding the stress of owning more than one house.
- You won’t have to learn all the laws. A landlord or short-term host must understand and stay compliant with local zoning ordinances and fair housing regulations.
- You can get rid of a house that requires a lot of maintenance. Is your home older and starting to need more care? Then it may not work well as a rental.
- You can put the proceeds from your home’s sale toward a new one. If your home sells at a profit, you may have enough to cover some or all of a new home’s down payment.
Your home may not be suitable to use as a short-term rental if it doesn’t meet zoning requirements and/or isn’t in an ideal location. In this case, renting it long-term or selling would make sense. While STRs typically earn more than long-term rentals, especially in popular areas, zoning laws vary from city to city and may restrict which properties can be rented short-term.
Other considerations, like property taxes, may make renting undesirable and could encourage you to sell. For example, if you’re moving from a state with high property tax to a state with low property tax, your original home may not be worth hanging onto. Selling could give you a clean break when moving to a location where some of the monthly costs associated with homeownership are noticeably less.
If the choice between renting and selling is purely financial, it’s a good idea to research rentals in your area, estimate your home’s value, and crunch the numbers. The National Association of Residential Property Managers offers a Rent vs. Sell Calculator you can use to count the cost. You can also consult a local real estate agent to find out how much homes like yours may be selling for.