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People generally tend to face a dilemma just after selling their house: will buying or renting a house be a better option? It is a common concept that buying a house is always a smarter financial decision. However, thorough research should be done on the kind of property that you are aiming to go for. More often than not, you would find that the real estate industry had taken up the marketing ploy of portraying home-ownership to be a magical path for gaining wealth is a ploy for marketing. In fact, home prices do not generally keep pace with the rates of inflation. Owning a home gives you stability in life, where you are not at the mercy of a landowner, and freedom of doing what you want with your place. Buying a house makes sense for some, but for most the reasons are anything but financial.
Here are five points that you must consider:
Are you moving permanently?
If you going away for a few years and returning to the area afterwards, it is a better and cheaper idea to put your house on rent and on returning, move back in. this way you need not pay sales commissions for selling your house and purchase another one when you return.
In order to avoid taxes for capital gains you need to live in your house at least three years of the last five years. If you are renting your house for two years, and you sold it before third year, you would not own any capital gains in this case.
Is it a purely financial decision?
If yours is a financial decision one of the easiest ways to tell whether it is better to rent or buy a new house is checking out the price-to-rent-ratio or the P/R ratio. The result will give you a tentative idea about the prices of homes in your locality. Find out two similar homes, one for sale and the other for rent and then divide the sale price by the annual rent.
Does the rent money cover the mortgage amount and expenses?
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A smart way to have a tension-free retirement is to keep your house. Your income of rents probably would even be tax-free if you have mortgage interests and costs of repairs. When it is finally settled, you can sell it for a lump sum or continue renting it.
Do you need tax deductions?
If you rent your house instead of selling it, there are tax depreciation that you can enjoy. The current market value of your house divided by the 27.5 gives you the amount of annual depreciation. For a $100,000 house there would be an annual deduction of $3,636 depreciation along with other deductions like repairs, taxes, community association fees, etc.
You estimate house prices to rise over the next five years.
If we consider that your rental income is not covering all your expenses like mortgage, property, repairs, taxes, etc. you can make up that loss if the value of your house rises prior to your selling it. Moreover, renters, more than buyers, would choose to ignore the condition of your house.
