When you put your home on the market, you were willing to be patient and wait for the right offer. You’ve got equity in your home and with the market improving over the years, you were optimistic about your prospects. You also weren’t so desperate that you’d take a bad offer.
But your home sat on the market for months. Nothing worked out either because the offers weren’t what you could accept, contracts fell through, or even worse, no offers came in.
You’ve already bought another property and moved in. The idea of your home staying vacant doesn’t sit well. Plus, you’ve heard that the market is changing again, inventory is growing. Things are shifting - as they always do in real estate.
The idea hits you. You’ll rent out your home for the next year, maybe two. Collecting rent and waiting for the market to shift again sounds like a good idea. You’ll get a little extra income, and your home will have someone in it, taking care of it for you. Even if values don’t go up for a while or things don’t change in the Naples market fast enough, at least you’re making a little extra money.
It all sounds good, almost easy. But there’s another side to renting that you need to consider first.
It May Cost You
When you sell your home, you’ll (ideally) make some kind of profit from it. These gains aren’t taxable up to $250,000 for a single person and $500,000 for a married couple when selling your primary residence. But if you rent your property and then sell it later for a profit, you will be subject to a capital gains tax.
Even worse, if the market goes south and values go lower, you’ll have lost the monetary value of your home when you sell. It will be like paying twice - first, the capital gains taxes and second, the loss of profit you might have made if you hadn’t waited. When put in that context, the less-than-acceptable offers might not sound so bad.
Being a Landlord Isn’t Easy
The other side to renting that you may not have considered is how difficult it is to be a landlord. You need to find a tenant and follow all federal laws, specifically fair housing laws. You’ll want to check their background to make sure you’re renting to good, safe tenants. Collecting rent when someone doesn’t pay or dealing with an eviction when they’re months behind on rent is a big job.
And if you work with a property manager, you’ll have to pay their fee which can be well worth it when you find a great company. But that also cuts into how much income you’re able to make on your home as a rental. Even worse, if you’re unlucky enough to work with a bad management company, you could lose tenants and income.
Renting a home that isn’t selling is a viable option for some people. But before you jump in, make sure you do your homework. Talk to a CPA about the income and tax implications of renting first. Then interview reputable property management companies so you get an idea of what it costs to be a landlord - both in money and time.
If you’d rather try selling your home one more time, we can help. Contact us and let’s talk!