To Sell or Rent?
Evaluate the Rental Market: It's wise to consult a real estate agent to estimate rental rates and how long it would take to find a renter. However, you should know that rent is based on market rates and not the amount you need to cover EMI's for the home loan. If you choose to rent, you may sometimes need to be prepared for negative cash flows, in other words it costs more to own and maintain than the rental income. The cost of maintenance, municipal taxes and loan interest rates have risen but the market rents have dropped. There can be valid reasons to hold a property even for negative cash flows. Perhaps the likelihood of property appreciation is strong because of the developments in the neighborhood, in such cases, the long term capital gains are excellent.
Equity: Homeowners with good cash on hand or cash-flows have lower EMI's for the home loan. Renting can be a better option in such situations as it will result in positive cash flows. India is a market where people haven't seen home prices drop like we've seen in the western markets. Homeowners with higher equity should hold on to the property for significant long term capital gains.
Market Prognosis:Homeowners should update themselves with local market trends in real estate and research on home resale or rental values. Try to look at historical and current trends by each suburb on price trends. Employment is an important driver for housing demand. If your suburb is an IT hub, you can expect a double digit appreciation in short term. Also, you'll need to look out for demand vs supply ratio, if the supply is more, chances of people buying a house is more.
Cost of Ownership: The cost of ownership can be very high if you have a luxury property as homeowners will need to payout high principal and interest on their home loans. There are other costs too, such as, maintenance, municipal taxes and property taxes.
Landlord?: Are you ready to be a landlord? Before you decide to put your home on rent, let's understand what it takes to be a landlord.
- Rental income can cover up some or all the EMI's to the bank.
- You may enjoy the property appreciation at the expense of the renter.
- Monthly maintenance costs and municipal taxes can be passed on to the renter.
- Costly repairs cannot be delayed.
- EMI's must be paid even if rentals are delayed.
- Some tenants can be messy and may lead to disputes.
- Eviction of tenants can be a major headache.
- Can't avoid holes on your walls.
So should I sell or rent my house? it all depends on your personal situation based on the above factors.