Whether you are relocating for a new job, need more space for your growing family, or simply want a change of pace, every homeowner will face the big ticket question at one point or another- to sell, or to rent out? We wish it was as simple as asking a Magic 8 Ball, but the reality is that answering this question can be quite the feat. That’s why we’ve broken down the thought process into 3 simple categories: Market Conditions, Financial Considerations, and Personal Circumstances.
But first, PAUSE. Is your home part of a homeowner’s association? Skim your HOA bylaws to confirm the rental rules in your building. Some HOAs either don’t allow rentals, or have a cap on the number of years that you can rent out your home for. If your HOA gives the green light on the rental front, read on!
Imagine Chicago’s real estate market as a pendulum that swings very, very slowly. One side of the pendulum represents homebuyers, and the other side represents homesellers. Over time, that pendulum is going to swing in different directions; you want to sell your home while the pendulum is on the sellers’ side. This means that home prices in your area are rising and the supply of similar homes for sale in your neighborhood is low. Over the past two years, we have seen a strong sellers market in Chicago, and we’re expecting that to continue in 2017.
Next, think about the physical location of your property. Are you seeing new homes and businesses sprouting up on the daily in your neighborhood? Or does the area look the same as it did when you bought your home years ago? If you’re noticing lots of new improvements and think your home value could appreciate as a result, it might be best to wait out the development storm and collect rent for a few years so you can reap the benefits when you do sell. If you think the demand to live in your area is going to decline in the coming years, it may be best to get your money out now.
The sell vs. rent dilemma is very much a numbers game. Here are the three most important figures you’ll need to know to aid your decision.
- Your Monthly Expenses: What does it cost to own your home? Look at your mortgage monthly statement, and don’t forget to add in your HOA assessment if you have one. If you pay your property taxes or homeowner’s insurance once a year, divide those by 12 and add them to your monthly payment. . You can leave out utilities, cable, and internet, as these are typically paid for by a renter who is occupying your unit. Boom. You have your monthly expenses calculation!
- Your Estimated Seller Net Profit: How much could you reasonably plan to sell your place for in the current Chicago real estate market? And what would your estimated net profit be after deducting broker fees and closing costs? We made it easy and created a Seller Net Sheet to help you do these calculations. Just plug in your home’s estimated worth and answer a few simple homeowner questions. You can always contact us if you want us to pull some recent comps for similar properties in your neighborhood.
- Your Estimated Monthly Rental Rate: What could you realistically charge in rent each month? Check out what other similar units in your neighborhood are currently renting for. Our search feature is a great way to see what is currently available in your area, or contact us for an estimate.
You have your three numbers? Now, subtract your monthly expenses from your estimated monthly rental rate to see what your monthly rental net profit would look like. If you’re in the negatives, then selling is likely your best bet, since this doesn’t even account for unforeseen repairs, special assessments, or future property tax increases. If you’re breaking even or in the positives, then take your estimated seller net profit and divide by your estimated monthly rental net profit. This will tell you approximately how many months you would need to rent your place out for in order to make the same profit that you would net by selling.
You’re moving on to a new home, which will require your tender loving care and attention to maintain. We wish that all renters were angels, but in reality, a renter is less likely to treat your place as gently as you do. So, are you ready to be a landlord? When you rent your home to someone else, you must be prepared fork over money and time when a repair needs attention or when the tenant doesn’t pay their rent on time. If you’re moving away from your area or have several rental properties, you may want to consider paying a local management company to take care of things for you when you can’t physically be there. Many maintenance issues are time sensitive and can’t be resolved over phone/email.
So what’s it gonna be? Deciding that you are going to move is already tough; Layering on the sell vs. rent question is even more difficult. Whether you decide to go through the above steps or would rather just talk it out, we’re here for you.