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To Sell or To Rent?
By Sally Moser, Independent Broker, Silver Peak Realty
Are you a player in the following scenario? You own a condo or
a small single-family home. You recently got married or your family
is growing or you want more space. Low interest rates combined
with a well-stocked inventory of properties in Boulder County
have you thinking, “I should buy now, but what I am going
to do with my existing home? Should I rent it or sell it?”
Indeed, that is the question that must be answered before you
can proceed. Your financial situation may dictate the answer,
but if you have the option of holding on to your existing property,
here are some things that you should consider.
Renting Your Property
Advantages
- Your property may accrue appreciation at market rates. This
is perhaps the most compelling reason for people to hold on
to their property. While the rate of appreciation in Boulder
County has recently slowed, it still compares favorably with
many other investments.
- If you sell the property and you have lived in it two out
of the past five years, you can still take the $250,000/$500,000
exclusion from paying capital gains. So it may be advantageous
for you to rent it for at least two years before selling it.
- If you rent the property for longer than three years and then
sell it, you can defer capital gains tax with a 1031 exchange.
This process involves buying another property with the proceeds
from the sale of the original property.
Disadvantages
- The real estate market may change in the interim, affecting
value and salability of your house or condo. While the market
has predictable cycles, the future is unpredictable. Anticipate
changed conditions when you decide to sell.
- You must deal with the management of tenants or pay a management
company. Assess your tolerance for tenant complaints, late rent
checks, repair requests, etc. The alternative is to hire a management
company which will charge a leasing fee, plus a percentage of
the monthly rent.
- A negative cash flow may occur. Payments for repairs, maintenance,
insurance, taxes, and the mortgage add up. What if the property
is vacant for a few months? Can your finances handle it?
- The sale of a home is more difficult if it’s tenant-occupied
rather than owner-occupied. Tenants have little motivation to
make the best possible presentation of your property to potential
buyers and generally do not welcome frequent interruptions in
their home.
Selling Your Property
Advantages
- Assets are readily available for other investments or that
round-the-world trip you’ve been promising yourself for
years!
- You are taking advantage of current market prices and conditions.
As noted above, the future is unpredictable and by selling your
property, you will lock in the appreciation that you’ve
accrued over the years.
- You don’t have to put any more money or time into the
management and upkeep of the property. Many people don’t
have the time or inclination to be landlords, and would rather
devote their energy to family, work or hobbies.
Disadvantages
- You will not accrue any more appreciation, but will need
to seek out other investments.
- Depending on the time of year and the price you are asking
for your property, it may take a long time to sell. In the meantime,
you are still responsible for upkeep, mortgage payments, etc.,
and may not have any rental income to offset these expenses.
- Your property may not sell for the listed price. The hot tub
and grape arbor that you installed at the cost of $10,000 may
not increase the value of your home. Potential buyers may see
your improvements as detriments rather than assets.
- You need to deal with the inconvenience and stress of keeping
property in showing condition while living in the home. And
who likes to keep his or her room clean every day?
Only you can decide what’s right for you, and you need
current information. Your Realtor can provide an update on the
market as well as a comparative market analysis to help determine
your property’s value. Ask him or her for a recommended
listing price, how long you can expect your property to be on
the market, and what improvements would make your house or condo
more marketable. Also have the Realtor give you available listings
for the type of property you are thinking of buying and an estimate
of the rental market prices. Combine all this information with
a little common sense and you will be ready to decide to sell
or to rent.
Sally Moser is an Independent Broker, Silver Peak Realty.
She can be reached at 303-829-3740
or E-mail: Sally@SallyMoser.com
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