Especially among first-time homeowners, the thought of selling their home before moving into another one is the rule and not the exception. Keeping the property and renting it out isn’t an avenue that many people planning to sell their home follow.
However, owning a rental comes with a number of benefits for homeowners – not least the income homeowners can expect from rent. Aside from these nice little bonuses – which can help to pay the mortgage on another property or on the property they already own – renting a property also gives the home itself a chance to rise in value, potentially offering far bigger financial returns than it would if they sold the home immediately.
Scenarios where you should rent out your home
Renting property out isn’t for everyone, of course, and there are certain specific scenarios that could leave homeowners much better off than others. Here are a few situations in which homeowners looking to sell their property should give renting it out a second thought.
1. You don’t need to sell your house to buy your next one
For many people thinking of selling their home, the primary reason behind doing so is to have cash in hand for another property. On the other hand, many homeowners might have paid off their mortgage years ago and already have the funds together to put down on the mortgage of another property. Some sellers might not even want to acquire a new property at all, and could be planning on becoming renters themselves.
For these people, renting their property while staying somewhere else makes a lot of sense – even more so if they are looking for another stream of passive income.
If sellers don’t need the lump sum attained from the sale of their home for something else, a regular rental income will help to fund any other expenses, whether this is the mortgage on another home or rental payment on a property. Property accounts for most of the wealth among the richest people in Australia for a reason, and rental properties often open the door to acquiring even more property and further growing one’s own financial reserves.
2. You’re able to qualify for a second mortgage
Depending on their debt-to-income ratio, sellers may be able to qualify for a second mortgage. When looking for a new home, sellers can apply for mortgage pre-approval, which usually involves applying to a lender, after which a preliminary assessment of their income, savings and debt will be done. If a person is pre-approved for another home loan, it will be valid for between three and six months, which gives homeowners ample time to decide whether renting is the right option for them.
Pre-approval also gives homeowners an idea of what they will be able to afford, should a second mortgage on a second property be necessary. If homeowners are able to secure a second mortgage, the income earned from renting their first property can assist them in paying any of the two mortgages, while also adding another asset to their financial portfolio.
3. It’s a bad time to sell your house in terms of the market
Of course, all sellers want to make a profit when putting their home on the market, but sometimes market conditions are simply not conducive to making a good profit on their property.
People planning to sell their homes, together with their real estate agents, usually use comparable properties in the city or suburb to gauge what kind of price they can expect. When it is a buyer’s market, this might mean having to sacrifice some profit. Various factors can influence the selling price of property at any given time. Strained markets due to things completely out of the seller’s control – like the sudden onset of a global pandemic – can also lead to lower selling prices, or houses that stay on the market longer than what is ideal. While some homeowners might decide to cut their losses and sell in case things get worse, others might want to consider instead holding on to the property and renting it out until the market is more favourable.
Some homeowners might find, after only living in the property for a short while, that the neighbourhood simply doesn’t appeal to them, but might want to keep the property instead of selling it before the home has had a chance to gain value.
In circumstances like these renting is a great alternative to selling the property and missing out on profits that may well lie ahead in the future. Even just renting the property out for a year can make a very big difference in profits. If you are willing to play the waiting game, you could reap big rewards – and the extra cash from the rental income won’t hurt either.
4. Your house is in a good renter’s area, and renter-ready
In the real estate market, supply and demand is the name of the game, and if you are lucky enough to own a property in a suburb or city where supply is always high, finding renters for your property won’t be difficult.
Bigger cities where people prefer renting property over buying, or towns or cities with universities or other institutions of higher learning are goldmines for people who own rental properties, and almost guarantee a steady stream of rental income for years on end.
Of course, this also means that the property will have to be renter-ready, which could necessitate some repairs and renovations to the property before it is advertised as a rental property. Ask your real estate agent about the needs of renters in your city or suburb and do renovations accordingly – it makes sense that students might prefer a lock-up-and-go, while families want something more homely, and might have more time to spend on things like garden maintenance.
Also consider advertising your property as a fully furnished space. Even if this might mean you’ll have to spend some cash upfront to kit the place out, you will be able to make the monthly rental amount higher. Within a month or two, you will have paid for the furniture and renovations – the rest goes straight to your pocket!
Selling a property before moving into a new one isn’t the best financial decision for everyone, and deciding to advertise the home as a rental property instead can hold great monetary rewards for the homeowners that are able to do so.
If homeowners don’t really need to sell the property before acquiring a new one (because their current property has already been paid off or because they are planning to also rent instead of buying another home – reasons vary) leasing the property to renters can become a great passive stream of income that doesn’t require getting rid of one of their biggest financial assets.
Some homeowners might even be able to secure a second mortgage, which the rental income can help to pay off. If market circumstances aren’t very favourable, sticking it out and waiting for the market to turn can lead to significant returns in a year or two.
If a property is already renter-ready, that is even better reason to consider renting it out for a while before selling – this is particularly true in cities or suburbs where renters are aplenty, be they students, young professionals or families who aren’t sure they want to settle somewhere yet. If a property does need some attention to make it appealing to renters, don’t be discouraged and keep in mind that these renovations would have had to be done before the property went on the market, anyway. The repairs and renovations done to appeal to renters will also be beneficial when the property is ultimately sold.
Whether you are looking to sell your property or rent it out, an experienced real estate agent that knows their stuff is cardinal to making the best profit. If you are specifically looking for rental advice, Perfect Agent’s database of real estate agents in your city or suburb has someone that is ready to assist you.
The agents we recommend know the markets in their respective cities and suburbs and understand the undercurrents of the rental market, and will be able to give advice you can trust. Has the rental market left you stumped? Simply fill out a quick questionnaire to let us gauge what your exact needs are, and we’ll find an agent that covers all your bases.