Should I Sell Or Rent My House? 5 Considerations

Posted by on Friday, February 21st, 2025 at 9:35am.

Should I Sell My Old Home or Rent It Out?

Deciding to sell or rent your property involves a complex set of decisions. On the one hand, renting out your old home could offer a steady income stream and potential appreciation, but it also means landlord responsibilities and susceptibility to market fluctuations. Plus, in order to secure a mortgage for your new house, you’ll need to keep your debt-to-income ratio in mind. Selling, meanwhile, can provide immediate funds but might not maximize your property's value. How do tax implications, financial goals, and lifestyle ambitions weigh into this decision? It's essential to assess these factors thoroughly to determine the best path for your situation.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.

Deciding to Rent or Sell at a Glance

Renting provides ongoing income and potential property appreciation, benefiting long-term financial goals.
Selling incurs significant initial costs, including agent commissions and closing expenses.
Rental income is taxable but allows for deductions, enhancing financial benefits.
A robust rental market favours renting over selling, indicated by low vacancy rates.
Emotional attachment and lifestyle flexibility are important considerations in the rent versus sell decision.

Financial Considerations

Financial considerations are pivotal when deciding between selling or renting your old home. Your financial situation will heavily influence this choice, especially when determining maintenance costs and potential rental demand. If you rent, a $250,000 home could generate an annual cash flow of $24,000. This can be a steady income source, but you'll need at least $10,000 in discretionary funds to cover vacancies and unexpected maintenance costs.

On the other hand, selling a property involves immediate expenses like agent commissions and closing costs that can eat into your profits. While selling is a quick way to access cash, renting offers the opportunity to build equity over time. As tenants pay down the mortgage, your financial situation could improve, potentially outpacing the immediate gain from selling.

Analyzing local rental demand is important. High vacancy rates can signal challenges in finding tenants, impacting your rental income. Still, it costs money to market your home to sell, and there’s a risk with both options. Ultimately, weigh how these factors align with your long-term financial goals and whether you prefer steady income and equity growth or immediate financial liquidity.

Tax Implications

If you choose to sell your home, you may face capital gains tax if your profit exceeds $250,000 for individuals or $500,000 for couples. Conversely, renting out your home introduces rental income, subject to federal income tax. At this point, you’ve become a real estate investor. You'll need to report this income on your tax return, but you can offset it with deductions for expenses like mortgage interest, property taxes, and maintenance.

Consider the long-term tax implications if you decide to rent out your home. Renting for more than three years before selling could subject you to a depreciation recapture tax, which impacts your profits upon sale. This tax recovers the depreciation benefits you claimed while renting. Additionally, managing rental properties can be complex. A property management company might simplify this process but will reduce your rental income due to management fees, impacting overall financial returns. Carefully weigh these factors when deciding your home's future.

Market Conditions

The Market Plays a Big Role In Whether It's Better to Sell Or Rent

Consider the current market conditions when deciding whether to sell or rent your old home. If inventory levels are low, you might be looking at a potential seller's market. This indicates low inventory and high buyer demand, which could mean higher offers if you choose to sell.

However, don't overlook the rental market's potential, especially in popular neighbourhoods where high demand can lead to quicker tenant placements. Plus, economic conditions, like higher interest rates, might encourage you to hold onto your property, especially if you've got a low-rate mortgage locked in.

Analyzing local vacancy rates is another critical step. Low vacancy rates often signal a robust rental market, making renting your home advantageous. Weighing these factors can help you make the most financially beneficial decision, ensuring you're making the most of current market conditions while considering your long-term goals.

Lifestyle Factors

Your lifestyle choices might lean towards the flexibility of renting out your old home, especially if you're considering relocating. This approach allows you to maintain ownership and test new neighbourhoods without fully committing to a sale. The rental demand in desirable areas can offer steady cash flow, supporting your lifestyle while you explore new opportunities. In a growing city like Kelowna, British Columbia, homeowners will have a higher level of confidence renting out their old home than in an area with a dwindling population.

However, landlord responsibilities shouldn't be underestimated. Balancing tenant management, maintenance, and legal compliance with a full-time job or other commitments can significantly impact your circumstances. If these responsibilities seem intimidating, they might affect your decision to rent.

Conversely, emotional attachment to your home can play a considerable role. Renting might allow you to keep a connection to a place filled with memories while still generating passive income. Additionally, with property appreciation potential, holding onto your home could align with your financial goals. This provides a source of income and a valuable asset for the future, enriching your financial and personal lifestyle aspirations.

Long-Term Goals

Beyond the immediate financial and emotional considerations, establishing long-term goals is essential to making an informed decision about renting or selling your old home. By defining your long-term financial goals, you can better assess whether retaining property ownership aligns with your future aspirations.

Renting out your home provides a steady rental income, which can serve as a valuable asset over time, especially when paired with the potential appreciation in property value. This dual benefit can cover expenses and contribute to wealth-building strategies.

If you're planning to relocate, renting out your property offers flexibility. It allows you to return to your original home without navigating the complexities of re-entering the market, particularly in fluctuating real estate environments. Retaining ownership while benefiting from market trends can be a strategic move for homeowners with significant equity. Holding onto your property could yield better returns if values continue to rise—just be sure to understand the rental income tax in Canada.

Consider your lifestyle aspirations, too. If upgrading to a larger or more luxurious home is part of your long-term plan, the income from renting your current property can provide the necessary funds while maintaining your investment potential.

6 Questions to Ask Yourself

To help clarify whether you should sell or rent your home, ask yourself the following questions:

Do you have the financial resources to hang onto a rental property? Owning a rental property comes with maintenance expenses, and you can't count on having a 100% occupancy rate to defray costs.
Do you have the tolerance to be a landlord? Being a landlord comes with significant responsibility, whether you manage things directly or hire a property manager.
Is there enough demand for local rentals? If the market is already saturated or there's not enough interest for you to cover your costs, it may be wiser to sell.
Do you think your home value will increase? If the value of your property has a good projected appreciation rate, it may be worth holding onto as a rental to sell later.
Is there a chance you'll want to move back in the future? Holding onto a property keeps this possibility open, whether for emotional attachments, work, or some other reason.
Are you even interested in real estate investing? Being a landlord is a popular way to generate passive income, but it can be a complex undertaking.