If You Can’t Sell, Should You Rent?

Trying to sell?

While certain property owners make a conscious decision to rent, many list their homes with the express goal of selling. What if, however, the attempt to sell is unsuccessful? What if lowering the price to the point that it is likely to sell will leave the seller “short”, unable to cover his mortgage obligation? Or what if the seller would simply prefer to wait it out, expecting the market to improve in a year or two?

Well, one option to consider is renting, instead of selling. Think about it this way: even if the goal is to eventually sell, as long as you don’t need the equity out of the house (to go buy another one, for example), as long as you can more than cover your monthly obligation (mortgage, taxes, maintenance), you will have more equity in the house once you do go to sell it (and could possibly take less while still satisfying the lender). Best case scenario: you might even make a small profit. You also escape capital gains taxes you’d pay if you sold. So should you rent instead of sell?

Why consider renting?

Why should you rent? Here in the Philadelphia metropolitan area and on the Main Line, rentals (especially single family houses) are hard to come by. As a result, it might be easier to find a renter than a buyer (and start having that monthly contribution coming in sooner rather than later). Additionally, if your house is vacant, you should consider that vacant properties are much more likely to sustain damage than occupied ones. Why? Because leaks and similar problems that arise in a vacant property are less likely to be noticed until they are larger issues.

Potential negatives to renting

Of course, there are negatives to renting. The most obvious one is that you will not have the “nest egg” of whatever equity you have in the property to use to purchase another house (or for whatever purpose you might need). Then, there are the inherent potential concerns of being a landlord–will your tenants pay? will they take good care of the property? Plus, you need to be available to deal with maintenance requests should they arise. Finally, if you eventually decide to sell, that can be challenging if you have an uncooperative tenant (think: one who does not want to be displaced from renting your house). Renting is definitely not the solution for every house that hasn’t sold, but it might be worth thinking about. For another perspective, click here.