Should I Sell my House or Rent it Out?
What happens when you get a new job in another city and need to relocate? Or your dream home becomes available? Should you sell your current home, or should you consider becoming a landlord and rent it out? Becoming a landlord is like having a small side business and requires that you stay abreast of Portland landlord laws and rules.
Of course, you can always hire a property manager to handle most of the tasks required to successfully rent property, but keep in mind that they typically take anywhere from 8%-12% of your monthly rental income for their services. You can also rent now and sell later, however, selling a home with a tenant inside can present its own set of complications. In Portland, tenant occupied homes sell for a lot less – if they manage to sell at all.
Both renting and selling can have their downsides. For instance, you could find that renting is too expensive or time-consuming. Or you could lose equity if you sell your home too soon. Every situation is different, and the answer depends on several considerations, as well as your financial situation and the quality of life you want to have or maintain.
How to Know When to Rent Your Home
To help sort out the question of knowing whether to sell or rent your home, there are a number of items you can consider to make your decision.
It might be a good time to rent your home if:
- Rental demand in your area is high
- You want to be a landlord
- Your home is not extensively remodeled (think of costs in terms of potential damage to existing condition)
- Your home doesn’t have a lot of bedrooms (the more bedrooms the more tenants, the more potential for damage)
- You have a personal attachment to the home and don’t want to let it go
- You feel confident you could make a profit: figure rent income against mortgage payment, property taxes, variable and non-variable repairs, landlord insurance, and HOA fees (if applicable)
- Your net profit through rental income will be more than you believe you can get from the sale price, depending on how long you’ve owned the home and keeping the equity you’ve built up in mind
- You can set aside enough for annual variable and non-variable maintenance expenses (experts recommend at least 1% of your home’s value per year)
- Your home has appealing amenities: location, walk and bike scores, or close proximity to mass transit and parks
- You owe more on the home than you can sell it for
- You think home values might go up, allowing you to rent now and sell later (but as we’ve mentioned, this can be more challenging than selling an owner-occupied home or a vacant home)
- You know your move will be temporary
Advantages of Renting Your Home
Keep in mind that you can count the rental income (usually 50%-75%) when applying for the mortgage on your new home. And when it comes to deductions, you may be allowed the following:
- Utilities and insurance
- Some materials and supplies to keep the property in good condition, as well as maintenance repairs
Disadvantages of Renting Your Home
Everyone who is a landlord today had to start somewhere, but if you’re new to the landlord life, consider the learning curve regarding rental laws.
You also run the risk of having your home sit vacant until it rents initially and later on between tenants.
Taking the time to screen and vet rental applicants will go a long way in mitigating late or unpaid rent, potential damages, and evictions. That said, though, life happens. Sometimes the best tenants in the world are surprised with massive financial strain, like unexpected medical bills or job loss, which can result in lost rental income for you.
It can take a lot of your personal time to manage if you don’t want to fork over the monthly property manager fees.
What Are Oregon’s Current Landlord-Tenant Laws?
Rental laws shift and change with the times. And the COVID pandemic brought unexpected changes to these laws to protect tenants. The below bullet points are an example of recent emergency protocol in an area.
- Senate Bill 891 (Safe Harbor Tenant Law), passed 12/31/2021—Up until July 1, 2022, tenants were protected from eviction due to non-payment of rent, according to the Oregon Eviction Moratorium, so long as they applied for emergency rental assistance, including documentation of their application to their landlord, along with a cover letter. For tenants still struggling with the ability to pay past and future rent, other programs exist through organizations like 211info.org, oregonrentalassistance.org, and the Multnomah Emergency Rent Assistance Program.
- Senate Bill 278, passed on June 22, 2021—Up until February 28, 2022, this law stated that a landlord could not serve termination papers or start an eviction court case for nonpayment of rent if the tenant provided documentation of their application for emergency rent assistance. The law also increased the pay out to landlords from 80% to 100%.
- Senate Bill 282, passed on May 11, 2021—Up until February 28, 2022, the grace period for repayment of rent balances for tenants whether they had applied for rental assistance or not, was extended. This bill also provides new protections for tenants: screening protections for tenants who could not pay their rent or were involved in eviction court action during the emergency period. In addition, the bill also protects some tenants from eviction or extra fees if they have guests longer than their lease stipulates.
- House Bill 4401, passed on December 20, 2021—This bill extended the original moratorium through June 30, 2022 and established the Landlord Compensation Fund.
The moratoriums have recently expired, but you can find additional information about Oregon’s current landlord-tenant laws on the portland.gov website.
How to Know When to Sell Your Home
If you choose to sell your home, you’ll be able to transfer any equity you’ve gained into your next mortgage. This can be a real boon if you’ve owned your home for several years. You can also potentially reap the huge benefits of capital gains exemption ($250K per individual, $500K per couple) if you’ve lived in the home for the last 2 of 5 years.
It might be a good time to sell your home if:
- You live in an area with a seller’s market
- You can’t get enough in rent compared to your home’s mortgage
- You don’t have the liquidity to cover monthly expenses associated with rental: property tax, mortgage payments, insurance, variable and non-variable maintenance costs, the cost of turning a property between tenants
- You need the proceeds from the sale of your home to cover the downpayment on your next home and other associated costs: closing, commissions, repairs, and updates
- You own an older home, which will require more upkeep with a tenant inside
- You’re not excited about becoming a landlord or you don’t have the time it takes
- You’re moving out of town and won’t be local to manage the property and/or don’t want to pay or can’t afford a property manager
- The potentially tax-free proceeds from the sale of your home could be used to purchase a multifamily plex with better income potential
The Bottom Line When Deciding to Sell or Rent Your Home: Money
For almost everyone, the biggest deciding factor between selling or renting your home comes down to financials. If possible, give yourself plenty of time to make this decision. Research rental comps just as you would real estate comps when shopping for a home (Zillow is a good place to look). See how your home and its location and amenities stack up against comparable rentals. Take the time to pencil out the financial implications of renting by considering the items below.
- Your mortgage
- Insurance: home and liability/landlord insurance
- Utilities not covered by tenant (E.g. water, garbage)
- Fixed and variable maintenance costs
- Homeowner association fees (if applicable)
- Property taxes
- Rental income taxes
- City-specific expenses, such as rental licenses (a rental license in Portland is $60 per rental unit)
Not Sure Whether You Should Sell or Rent Your Home?
If you’re in a position to leave one home behind for another and you aren’t sure whether to sell or rent, give us a call at 503-714-1111 or chat with the bot on our site. Our top 1% seller’s agents have 19 years of real estate expertise in the Portland metro area. We’ll be able to help you assess your situation so you can arrive at a well-informed decision that best serves your goals.August 17, 2022