Thinking about moving? You’re not alone. Most people don’t spend their whole lives in one place. As your life changes, so do your housing needs. You might move to a different neighborhood, city, state, or even country. Starting out, you might be content with a small place, but as your family grows, you’ll need more space. And eventually, when the kids move out, you might want to downsize.
So what’s the best way to handle a move? The traditional approach is to sell your current home and use the money to buy a new one. But maybe you’ve heard about the benefits of renting out properties. It sounds appealing, but you worry about the risks. What if the tenants don’t pay or damage your place? On the other hand, what if you sell your house and miss out on potential appreciation?
I won’t tell you what to do, because every situation is unique. But I will lay out the pros and cons of selling versus renting, so you can make an informed decision. By the end, you’ll have a better understanding of whether renting or selling your house in Birmingham, Alabama is the right choice for you.
Why Would I Rent?
Looking to build wealth? Real estate is the proven path. Over the past two centuries, 90% of millionaires have either made their fortune through real estate or invested in it once they became wealthy. This time-honored strategy works worldwide, and successful investors recommend holding onto properties for their future appreciation and cash flow potential. After all, they say, “they’re not making any more real estate.” With the abundance of benefits and evidence supporting real estate as a wealth-building tool, the choice is clear—rent out your property and reap the rewards.
Not exactly.
Why Renting Out Your Property Isn’t Always a Good Idea
While real estate can be a great investment, there are situations where renting out your property might not be the smartest choice. One key factor to consider is your financial situation – do you have enough money to cover mortgage payments, taxes, and other expenses related to the rental property? Even if you don’t have a mortgage, unexpected repairs and vacancies can still eat into your funds. And if you end up with a bad tenant who doesn’t take care of the place, you might have to evict them, resulting in months without rental income. On top of that, you’ll still have to cover taxes, insurance, and other costs. Getting the house ready to re-rent after eviction can be a costly endeavor and finding a new tenant may take even longer. This is far from the “mailbox money” often promised at real estate seminars, but it’s a reality that many property owners face every day.
If you’re still convinced that real estate is a good investment and you have some financial cushion in case things go wrong, it’s time to crunch the numbers. Keep in mind that house prices and rental rates vary greatly depending on your location, so it’s important to do your own research. Here’s an example to consider:
Consider this scenario: you own a house worth $250,000 and still owe $100,000 on the mortgage, with 7 years left to pay. Your monthly payments amount to $1,600, and additional expenses for property taxes and insurance add up to $250 per month. So, your total monthly payment stands at $1,850 (excluding HOA fees).
If you were to sell your house in Birmingham today for $250,000, factoring in a standard 6% realtor commission and estimated closing costs of 4%, you can expect to receive around $225,000. After paying off your $100,000 mortgage, you would be left with $125,000. It’s worth noting that this $125,000 may be tax-free, but it’s advisable to consult with your accountant for confirmation.
Now let’s shift our focus to the rental potential. Assuming your house could be rented for $2,500 per month (excluding property management fees), you could stand to earn $2,250 if you manage the property yourself. However, if you decide to hire a property manager, you would need to deduct 10% from the gross rents received. Taking into account a 15% reduction to account for vacancy and maintenance costs, your monthly cash flow would amount to $275 after considering your mortgage payment, property taxes, insurance, and other expenses.
Sounds complicated?
If you don’t want to deal with the complexities of renting out your home, you can receive your cash payout by selling your home fast with Birmingham Homebuyers, LLC.
We buy homes as-is in any neighborhood in the Birmingham, Hueytown, Hoover, Gardendale, Fultondale, Alabaster, Pelham, Calera, and Trussville, AL areas in cash, and we can close in as little as 7 days.
Contact us today for a free offer on your home!