How to decide if you should rent out or sell your current home when you buy another home.

Current homeowners who are in the process of purchasing their next home often consider renting out the home they are leaving. While it might seem like easy passive income, there are pros and cons to becoming a landlord. Ask yourself the following questions to help you decide if renting out your house could be right for you.

Do you want to be a landlord?

If you want to be a landlord, renting out your home can help you achieve that goal.

If the idea of being a landlord is new to you, honestly assess whether you’re prepared to deal with all it entails, including the rental application process, maintenance, emergency repairs and more. Additionally, there’s always the possibility of late or no payments and evictions. As a landlord, you may also have to have tough conversations with renters about noise or other problems.

You want to rent your house out but not deal with renters?

When it comes to renting out your house without having to manage it, it’s possible to have your cake and eat it too. Hiring a property manager who handles the logistics is an option, but it could cost you between 8-12% of the monthly rental amount, plus expenses.

What is the rental market in your area?

Assess the level of demand for rentals in your local area. Is your home within a highly desirable school district, near major employers or where a large new employer is moving in? Factors such as these work in favor of those who rent out homes.

If your home is in a place that makes it difficult to find renters, consider that selling might be a better option.

Is renting profitable?

Renting out your home can bring in cash, but it still requires you to cover expenses. As you analyze whether becoming a landlord makes sense for you, tally up the cost of your mortgage, liability insurance — landlord’s liability insurance will be higher than standard homeowners insurance, property taxes, rental income taxes, applicable local expenses — such as a rental license, planned maintenance costs, emergency repair costs and utilities not covered by the renter.

Are there HOA restrictions on renting?

If your home is part of homeowners association, there may be restrictions on renting. Read the HOA bylaws, covenants, conditions and restrictions to see if renting is allowed, and if so, what parameters you must operate within.

Do you plan to move back into your house?

Some homeowners move for a job or attend school with the intention of moving back to their home. If you plan to move back, anticipate the lease terms so the home will be available when you want to return.

Also, don’t overlook the emotional aspect of someone else living in your home. How will you feel if something is damaged?

Can you cover the cost of the house if it’s vacant or rent is paid late?

Some homeowners who rent out their homes get into a financial bind because they’re overly optimistic and assume the property will be rented out 100% of the time and that renters will pay on time, all the time.

If you have a mortgage on the home you will still have to make timely payments even if a renter pays late. If the home is vacant between renters, your monthly loan payments must still be made. The lawn must be mowed and the snow shoveled. Utilities and taxes must be paid. Make sure you have enough cash on-hand to cover three to six months of expenses.

What’s the opportunity cost of tying up capital in a rental home?

Choosing to rent out your home prevents you from using your home’s equity for other purposes. Would it be better for you to invest your capital somewhere else — such as a new home or use it to pay for other things like college tuition or retirement?

Should you rent out your house?

Only you can decide if renting out your house makes sense for you and your family. Carefully consider the questions above. And, when you’re ready to buy your next house, turn to us for a competitive Consumers mortgage.

Consumers helps thousands of members finance land, first and second homes, and home improvement projects each year. We’d love to help you with a mortgage or home equity line of credit; contact us online or call us at 800.991.2221.

*All loans subject to approval. Rates, terms, and conditions are subject to change and may vary based on credit worthiness, qualifications, and collateral conditions.