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NJ Real Estate FAQ: Should I Sell My House or Rent it Out?

On Behalf of Veitengruber Law | Jul 16,2020

You've made the decision to move and have even found the house of your dreams. But what do you do with your old home? Renting has many financial benefits. You can use income earned from rent to cover your monthly mortgage and then some. Renting out your home can be a great investment, diversifying your income revenues. You can continue to rent out the property after you have retired or sell the home at that time to cushion your transition to your golden years. Today we'll discuss the most important things to consider when deciding whether to rent or sell your NJ real estate property. Two of the most important factors to take into consideration are your home's current valuation and capital gains. If you aren't thrilled with the valuation, renting it out temporarily can help cover the mortgage and expenses while you wait for the value of your home to rise. But be careful about waiting too long. After three years of renting, you can no longer claim the home as your primary residence. If you sell after this point, you will have to pay capital gains taxes on any profit you make, whereas if you sell after renting for under three years, you can exclude $250,000 of capital gains when you sell. Be sure to consider the legal and tax implications of renting. You will be taxed on any income you make from your rental, but you will also be able to write off all costs associated with the rental. So if you make $20,000 from rental income, but your expenses on the rental were $10,000, you will only be tax assessed on $10,000. There are other tax breaks you may be eligible for based on your specific situation. Legally, you will be responsible for understanding the landlord-tenant laws and ordinances in your area. Some of these rules could impact the profitability of your rental if you live in an area that favors tenants' rights. Can you afford to buy a new home without using the equity you have invested in your old home for the down payment? Coming up with 20% to put down on a new home can be difficult. You'll need to come up with the down payment and closing costs on your new home without the money you'd make from selling your old home. On the other hand, if you can swing it, renting is essentially someone else paying you to build equity in your property. The goal of renting is to have a tenant in your rental home year round with them covering all the associated expenses for running the home by paying you rent. But you should also be prepared for the worst case scenario: you will be paying two mortgages if you can’t find a tenant. Even if you no longer have to pay a mortgage on the property, there will be expenses like insurance and maintenance. You also have to consider the difficult and time-consuming process of evicting a tenant who has stopped paying rent or has caused damage to the home. In these scenarios, your rental may fail to make a profit for months. Like any other investment, renting comes with risks. If you are still not sure if you should rent or sell, speak with a financial planner or real estate attorney to get more specific advice about your situation. The benefits of renting out a property can be incredible and open up new financial opportunities as long as you aren't getting in over your head.

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