Renters Warehouse Blog
Introducing the Renters Warehouse Rent Vs. Sell Calculator
When it comes time to leave town or move on, many people assume that it naturally follows that they should sell their current home.
But while selling has long been regarded as the next step when it’s time to move, there’s another option that often makes more financial sense: keeping the home, and renting it out for monthly income.
Many people are finding that keeping their home as a rental is the best option, one that offers both short-term benefits, as well as excellent future returns. While it’s true that selling provides you with a sudden influx of cash, renting gives you a steady monthly income –for as long as you’d like. It also offers long-term benefits of equity, as you pay the mortgage down, and, ideally, appreciation, as the home continues to increase in value. If you do eventually decide to sell the home, you should be able to command an even higher price for it. Finally, with rental properties, you also get the opportunity for some great tax write-offs.
If you’re mulling over the question of whether to rent or to sell –you’ve undoubtedly made a pros and cons list in your mind. But this isn’t simple ‘back of the napkin’ stuff; an accurate assessment of renting vs. selling requires some more complicated math.
Thankfully, there’s a simpler and more precise way to run the numbers, and see which option will give you the best returns. Introducing the new Renters Warehouse Rent Vs. Sell Calculator. This calculator is a free tool that will crunch the numbers for you, showing you which option will offer you the most value over time.
If you’re curious about how much your property could rent for, and wondering if it makes more financial sense to rent or to sell, here’s a look at how our calculator can help to make the decision easier.
How It Works
The calculator takes a number of variables into consideration, to show you which option will provide you with the best returns.
To start with, it will take into account basic numbers like your estimated rental income, and weigh it up against fixed expenses like your mortgage payment, and other projected costs like taxes, insurance, property management fees, maintenance, and repairs. It will also factor in your home’s expected appreciation rate, and take into account the number of years that you plan to hold your asset.
It’ll also ask you for how long you’ve lived in the residence for –if you’re planning to sell, ideally, you’ll want to have lived in the home for at least two years out of five to qualify for the capital gains tax exclusion.
Click the “Advanced Inputs” button, and you can get an even more customized and accurate calculation. Here you can input fields such as the “make ready” costs –the amount spent on refurbishing the home should you choose to sell it, as well as your mortgage term, the transfer costs now vs. later, and the prepayment penalty for paying off your loan early. It will also ask for your estimated occupancy rate for your property, should you rent it out. Units are rarely rented 100 percent of the time, although, at Renters Warehouse, we’re usually able to fill vacancies within a few weeks on average. You’ll also want to input your estimated maintenance costs, which are usually one percent per year. Finally, this calculator also takes into account your projected annual change in rents –a four percent increase per year is a good, average estimate –especially as demand for rentals is expected to grow significantly over the next decade.
Hidden Expenses With Selling
When calculating the profitability of selling vs. renting, it is important to keep in mind that there are often hidden costs involved with the sale of the home; it isn’t all cash in the pocket. Here are a few things that should be included in your selling costs. If you input values into the fields, our calculator will take these expenses into account.
If you sell your home through a real estate agent, there is often a commission that is taken off the sale. The seller’s agent splits the commission with the buyer’s agent, and this cost is usually 5-7 percent of home’s sale price.
- Closing Costs
In addition to the agent commission, there are other closing costs that are usually involved with the sale of a home as well. These include a transaction fee or brokerage fee, the deed and recording fees, a deed transfer tax, and an escrow and closing fee; just to name a few.
- Seller Contributions
Don’t forget about seller contributions –sometimes sellers offer to pay for the buyer’s closing costs in an effort to sweeten the deal.
- Repairs and Upgrades
Homes are rarely ready to sell in their current condition. Often, they require upgrades or repairs to help them command the best price possible. Don’t forget to add in the estimated costs involved with bringing your home up to scratch.
There are also taxes that you will have to pay on the sale of the home, especially if you don’t qualify for the capital gains tax exclusion.
Long-Term Calculations: How Rentals Compare to Other Investments?
Finally, one of the great things about this calculator is that it helps you to plan for the future as well as the here and now.
Building wealth is all about thinking for the long-term. Whether you’re planning for retirement, or working toward building your own portfolio of investments, rental property can offer excellent long-term returns –and it’s worth doing your own calculations to compare your returns for your rental to other investments.
For example, when you compare the returns of a $300,000 rental income property with a $30,000 downpayment vs. a 401k portfolio with the same initial investment, over 30 years, the rental will be at $1,192,244.64 –assuming appreciation is at 3.7 percent per year. The 401k, on the other hand, with five percent returns, will only provide profits of $45,000 in 30 years, without taking into account compound interest.
As you can see, there’s a lot that goes into the process of determining whether it’s better to rent or to sell your home. Thankfully, the Rent Vs. Sell Calculator takes the guesswork out of the equation, allowing you to ensure that nothing is forgotten or overlooked when making your decision.
Plug in your numbers yourself to see which option’s best. It’s fast, easy, and free –and will help you to make an informed decision.