20 Mar 13
As a home owner, the thought of renting out your home to strangers may not have crossed your mind at the time you bought the house. However, things change over time and there may now be valid reasons for you to consider renting out the property. The most common reasons for home owners finding themselves in this position are a move interstate or overseas for career advancement, difficulty meeting the mortgage through loss of employment or illness, or a relationship breakdown.
What are Some of the Options?
Whatever the circumstances, there are a few things to consider. What is the real estate market like in the area, and will the house sell for a reasonable price? If that is unlikely in the current market, then renting the house until prices recover is probably the best option. Will the likely rental income cover the cost of any mortgage and other expenses? This may not be a huge issue if there is enough income from other sources to make up the difference. If, however, it will cause hardship, then selling may be the only option.
Another important issue is that of the management of the rental property. Finding and screening tenants, collecting the rent, chasing up rental arrears, taking care of repairs and maintenance and complying with the laws and regulations regarding tenancy agreements are just a few of the tasks involved in managing rentals. Most property owners prefer to engage professional property management agents to handle all this on their behalf, but this cost must be factored into the deliberations.
There are some tax advantages to having an investment property. The costs associated with holding the property are generally all tax deductible, thus reducing the owner's overall tax liability. The longer the property is held as an investment rather than as a principal place of residence, the greater the tax benefits. This also allows equity in the property to build provided the market picks up and experiences reasonable growth.
Emotion may be the Deciding Factor
In deciding whether to rent or sell, there is one issue that could be the deal breaker. There is a lot of emotional investment in a family home. Everyone involved must understand and be comfortable with the fact that strangers will be using this property as their home while they are paying rent. In the distressing event that a set of bad tenants occupy the property and cause significant damage, landlord's insurance will cover the physical damage, but there will be emotional turmoil that home owners may not be prepared for.
All things considered, selling versus renting is a personal decision and one that is different for everyone. Gathering all the information and working through the issues is the best way to make an informed decision. If selling is the best option, then the owner is free to move on and do something else. Those who rent intending to return have the certainty of knowing that they have a home to come back to. Either way, there are no losers.