Should you sell your second home or rent it out?
Perhaps you feel like you’ve enjoyed your second home, but it’s not worth the expense sometimes? Maybe you aren’t spending as much time at your second home as you’d like to, and you’re wondering if there’s a better use of your money.
If this is you, perhaps you’ve considered renting it out or selling it altogether. But what’s the best way to think about this important decision?
In this article, I’ll discuss some things you might want to consider when thinking about whether to sell your second home or rent it out.
Your home as a long-term asset
Whether it’s your primary or secondary residence, your home can be thought of as a short or long-term asset.
Before you do anything, it’s the best approach to get a baseline of your current situation if you did nothing at all – kept your second home into the future. That way, you can compare any scenario to this one, and to each other.
First, think of your costs (mortgage plus tax and maintenance) vs. the equity you’ll build, from paying down your mortgage and appreciation or depreciation. Now, draw these out over time, the next decade, etc. How much will the home cost you? How much equity (net worth) will be built?
Some people forget to consider their home as a long-term asset and simply focus on short term expenses. Don’t make this mistake.
Consider realities of renting
Before making any decisions, you’ll want to get a good sense of the potential of your home to be a rental property. Would it attract seasonal renters or year-round renters? How does it compare to similar homes being rented out in your area and what price point might you imagine renting it for?
Then, you’ll want to consider the net revenue by taking into consideration tax you’ll need to pay on proceeds, maintenance costs, cleaning and other expenses.
Look at what a sale might net you
Given the current real estate climate, you may want to speak to one or two seasoned real estate professionals in your particular geographic area. They can give you a sense of target sales price and expected time on the market. This will let you have more sophisticated detail about a possible timeline and sale price.
Once you have a timeline and estimated sale price, you can determine closing costs, real estate fees, and tax liabilities and come up with how much you can net.
Better financing option
Some people don’t consider financing as a way to reduce costs and/or maximize short- or long-term gains. When considering the costs of your second home, it’s smart to consider ways to finance it so that your overall costs drop while still considering your equity that you’re building. This could entail a shorter mortgage, recasting your mortgage, or an adjustable rate mortgage particularly if you decide to sell in the short term.
Don’t be short sighted when considering selling your second home versus renting it out. There are actually three choices: realizing your home as a long-term asset, renting it out, and selling it. The best way to go about this decision is to make a careful calculation and look at these three decisions in the short and long term, or you could be leaving money on the table. And don’t forget to consider changing your financing to better achieve your goals regarding your cost vs. equity opportunities.
If you need help in determining the best path for you, reach out to me and I can help. I help people who own homes make the best use of their money through financing and other strategies.