Should I Rent or Sell My Home in 2024?

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Deciding whether to rent or sell your house is a significant decision that can impact your financial future. With the current real estate market’s high interest rates, the choice becomes even more complex. This guide will explore the pros and cons of renting versus selling, helping you make an informed decision. 

The Pros of Renting Out Your House

1. Lower Interest Rates

With interest rates fluctuating and often reaching levels that can make homeowners wince, holding onto a low interest rate mortgage can be a great start to financial freedom. If you’re considering moving but don’t want to lose that sweet low rate on your current home, renting out your property might be the solution. Here are three ways keeping that old, low interest rate can benefit you long-term:

Cost Savings: A low interest rate translates to lower monthly mortgage payments, meaning more of your money goes towards the principal. This can save you thousands over the life of the loan.

Higher Cash Flow: Renting out your home at a competitive market rate while maintaining a low mortgage payment can generate positive cash flow. This extra income can be used for savings, investments, or to offset the cost of your new home.

Investment Growth: Real estate is a solid investment, often appreciating over time. By holding onto your property, you’re not just preserving your low interest rate, but also potentially benefiting from property value increases.

2. The Power of Appreciation

Renting out your home is a strategic financial decision, especially when considering the potential for property appreciation. Appreciation, the increase in your property’s value over time, can significantly impact your long-term financial goals. Let’s explore why renting out your home can be a smart way to leverage appreciation and build wealth.

Capitalizing on Market Trends: Real estate markets tend to appreciate over time, especially in desirable locations. By renting out your home, you can hold onto your property and benefit from market trends. As demand for housing increases, so does the value of your property. This gradual increase in value can provide substantial returns when you’re ready to sell.

Long-Term Financial Gain: Appreciation allows your property to grow in value over the years. Renting out your home means you can benefit from this increase without selling. Over a decade or more, even modest annual appreciation rates can lead to significant growth in your property’s value. This long-term gain can substantially enhance your financial portfolio.

Leveraging Appreciation for Refinancing: When your property appreciates, it increases your borrowing power. Higher property values can allow you to refinance your mortgage under better terms, potentially lowering your interest rate or freeing up cash through a home equity loan or line of credit. Renting out your home and waiting for appreciation can thus provide more favorable financial opportunities down the line.

3. Equity Growth

In simple terms, equity is the difference between the market value of your home and the amount you owe on your mortgage. For instance, if your home is worth $300,000 and you owe $200,000 your equity is $100,000.

Mortgage Paydown: Each month, a portion of your mortgage payment goes towards paying down the principal balance. With rental income covering these payments, your tenants are essentially helping you build equity in your property. Over time, this mortgage paydown increases your ownership stake in the home.

4. Tax Benefits & Deductions

As a landlord in Indiana, you can deduct various expenses related to your rental property. These deductions can lower your taxable rental income, ultimately reducing your tax liability. Common deductible expenses include:

Mortgage Interest: Interest on your mortgage can be deducted, making one of your largest expenses more manageable

Property Taxes: Annual property taxes are deductible, easing the financial burden of owning real estate. In Indiana, property tax rates are relatively low compared to the national average, making this deduction even more beneficial.

Repairs and Maintenance: Costs associated with repairing and maintaining your rental property are deductible. This includes everything from fixing a leaky faucet to repainting walls.

Insurance Premiums: Deducting the cost of landlord insurance protects your property and reduces taxable income.

Utilities: If you cover utilities like water, gas, or electricity, these expenses are deductible.

Depreciation: Depreciation is a powerful tax benefit for rental property owners in Indiana. It allows you to deduct a portion of the property’s value over its useful life (27.5 years for residential properties). This non-cash deduction can significantly reduce your taxable rental income.

For example, if your property in Indianapolis is worth $275,000 (excluding land value), you can deduct $10,000 annually for 27.5 years. This deduction can offset rental income, resulting in substantial tax savings.

5. Market Flexibility

Market flexibility refers to the ability to adapt to changing market conditions, whether through renting or selling. By renting your home, you retain control over when to sell, allowing you to wait for optimal market conditions. 

Maximizing Your Investment: Real estate markets are cyclical, with periods of growth, stability, and decline. Selling in a hot market means higher property values and greater demand, giving a higher sale price.

Avoiding a Buyer’s Market: Selling in a buyer’s market—where supply exceeds demand—often means lower sale prices and longer time on the market. By renting your home, you can avoid selling during these unfavorable conditions. Instead, you can bide your time, generating rental income until the market shifts in your favor.

Case Study: Consider a homeowner in Indianapolis who decided to rent out their property instead of selling during a sluggish market. Over the next few years, the local market began to heat up, driven by economic growth and increased demand for housing. During this period, the homeowner collected consistent rental income and made strategic improvements to the property.

When the market reached its peak, the homeowner decided to sell. Thanks to the hot market, the property sold quickly and at a significantly higher price than if it had been sold during the initial market slump. The rental income had covered expenses and even contributed to the property’s appreciation, resulting in a substantial profit.

The Cons of Renting Out Your House

  • More Work: Being a landlord involves managing tenants, maintenance, and repairs. This can be time-consuming and stressful. You need to be familiar with landlord-tenant laws and regulations, which can vary by location.
  • Treating It Like a Business: Renting out a property is akin to running a small business. It requires organization, financial management, and strategic planning. You must handle risks such as non-paying tenants, property damage, and vacancies.
  • Initial Costs: Preparing your home for rent might involve costs for repairs, upgrades, and marketing. You’ll need a reserve fund for unexpected repairs and vacancies.
  • Emotional Attachment: Renting out your home can be emotionally challenging, especially if you have sentimental attachments to the property.

  • Market Fluctuations: Rental demand and rates can fluctuate, affecting your income and the property’s profitability.

In Conclusion

Deciding whether to rent or sell your home is a significant choice that depends on various factors, including financial goals, market conditions, and personal circumstances. While renting can provide a steady income stream and potential for property appreciation, it also comes with the responsibilities of property management and tenant relations. On the other hand, selling your home offers immediate liquidity and relief from maintenance duties, but it might mean missing out on future market gains. Ultimately, the best decision aligns with your long-term plans, financial situation, and willingness to navigate the responsibilities that come with either path. By carefully weighing the pros and cons, you can make an informed decision that best suits your needs and future aspirations.

About the Author

Brooke Robinson

Brooke is our Digital Marketing Specialist. She is responsible for the marketing of T&H Realty on all of our main media channels including social media, podcasts, and our website.

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