A lot of doctors that are moving or looking to upgrade their starter home are faced with this question – Should You Rent Your House or Sell? It’s a good question, and like most things, the answer is “it depends”. Owning rental properties can be a great way to generate passive income. Because physician mortgage loans enable doctors to purchase a new home with as little as 0% down, keeping a starter home to rent out is often a realistic option. In this article, we’ll take a closer look at the pros and cons of selling your existing home versus renting it out.
Can You Afford The Down Payment?
As mentioned above, some banks will offer doctor loan programs that allow you to purchase a home without the customary 20% down. This lowers the hurdle required to buy and frees you to rent out your current home. However, some banks won’t lend with less than 20% down for certain condos or co-ops. It usually depends on how many units are owner-occupied. If you have the cash for the down payment on your new home, you’re ahead in the game. If not, make sure to look into your options for a physician mortgage loan.
Can You Afford the Mortgage Payments?
One of the assumptions with a rental property is that you have renters in the property paying you rent that will cover the mortgage payments on that property. Banks like to see two years of consistent rental income before they make that assumption. This means you should be able to cover both payments to qualify for your new house. The general rule is you cannot have more than 43% of your income going towards debt payments.
Can You Rent Your Current Home for a Profit?
If the rental income isn’t greater than the cost of owning the property, then it’s probably not worth renting it out. The entire idea is to generate extra money. Talk to some real estate agents and property management companies to get an idea of what you can realistically rent your home for. If you’re renting for $1,500 per month, but after property taxes and HOA fees, it’s costing you $2,000 per month, then you’re losing money, and you’d be better off selling.
Are You Ready to Be a Landlord?
Assuming you can rent out your current home profitably, there will be some work and risk involved. Think of all the headaches that come with owning a home. When you’re a landlord, you keep the burden of homeownership headaches. One of the benefits of renting is you don’t need to deal with those issues, and that’s why some rent. That being said, if you’re making money, the headaches might be worth it. You can work with a property management company to alleviate you from those issues. This is especially helpful if you’ve moved out of the city or state and are effectively a long-distance landlord.
So, should you rent your house or sell? If you’ve gone through all the above scenarios, have weighed the costs and benefits, and like the idea of passive income and owning multiple properties, you might want to rent your home. If you’d rather just move on and not deal with anything outside of work, then selling is probably your best option. It all comes down to profitability, time, and how much energy you’re willing to put into it.
