Moving Out of State: Should I Rent or Sell My House?

Moving out of state involves a significant decision for homeowners regarding their current residence: whether to sell it or convert it into a rental property. This choice carries substantial financial implications and affects your long-term financial landscape and lifestyle. The path you select depends on your financial situation, the local real estate market, and your willingness to undertake landlord responsibilities. Understanding each option is essential to make an informed decision that aligns with your goals.

Considerations for Selling Your Home

Selling your home when relocating offers immediate liquidity and eliminates ongoing property responsibilities. However, this option also involves several direct costs that reduce the net proceeds. Real estate agent commissions typically range from 5% to 6% of the home’s final sale price, covering both listing and buyer’s agent fees.

Beyond agent commissions, sellers incur various closing costs, which can collectively amount to approximately 6% to 10% of the sale price. These costs may include title insurance, transfer taxes, escrow fees, and attorney fees, varying by location. Additionally, expenses for preparing the home for sale, such as staging, minor repairs, and professional cleaning, add to the overall selling costs.

Current real estate market conditions play a substantial role in how quickly a home sells and at what price. A seller’s market, with low inventory and high buyer demand, often leads to faster sales and higher prices. Conversely, a buyer’s market, with more homes for sale than active buyers, can result in longer selling times and potentially lower sale prices. Analyzing local market trends, including average days on market and recent comparable sales, is a prudent step before listing.

Tax implications are another important consideration when selling your home. If you realize a profit from the sale, this is considered a capital gain. Most homeowners benefit from a significant exclusion for capital gains from the sale of a primary residence. Individuals can exclude up to $250,000 of gain, while married couples filing jointly can exclude up to $500,000, provided they meet specific ownership and use tests. To qualify, you generally must have owned and used the home as your primary residence for at least two of the five years preceding the sale.

If your capital gain exceeds these exclusion amounts, the excess is subject to capital gains tax rates, which depend on your income bracket. Long-term capital gains, from assets held for more than one year, are taxed at preferential rates, typically 0%, 15%, or 20%. The administrative burden of selling also includes managing showings, negotiating offers, and coordinating inspections and appraisals, which can be time-consuming, especially from a distance.

Considerations for Renting Out Your Home

Converting your primary residence into a rental property can provide a consistent income stream and potential long-term appreciation, but it introduces different financial and management responsibilities. Potential rental income must be carefully balanced against ongoing expenses. These expenses include the mortgage, property taxes, and homeowner’s insurance, which typically needs to be converted to a landlord policy, often carrying different coverage and costs.

Additional recurring costs for a rental property include homeowners association (HOA) fees, if applicable, and maintenance expenses. Budget for maintenance, with estimates often ranging from 1% to 4% of the home’s value annually to cover routine upkeep and unexpected repairs. Vacancy periods, when the property is unoccupied between tenants, also represent a cost in lost rental income, so planning for potential gaps of one to two months is advisable.

Managing a rental property involves responsibilities such as tenant screening, drafting lease agreements, and handling property maintenance and emergency repairs. Thorough tenant screening, including background and credit checks, is important to secure reliable occupants. Lease agreements must comply with local landlord-tenant laws, which can vary widely. Property maintenance encompasses everything from routine landscaping to addressing urgent plumbing or HVAC issues.

Many owners hire a property management company to handle these responsibilities, especially when relocating out of state. Property management fees typically range from 8% to 12% of the monthly rent collected. These companies often charge additional fees, such as a leasing or tenant placement fee, which can be equivalent to 50% to 100% of one month’s rent for securing a new tenant. While these fees reduce your net income, they alleviate the burden of day-to-day management.

From a tax perspective, rental income is generally taxable, but numerous expenses associated with the property are deductible. These deductible expenses can include mortgage interest, property taxes, insurance premiums, repair costs, property management fees, and utilities if paid by the landlord. A notable deduction is depreciation, a non-cash expense that allows you to recover the cost of the property over its useful life, typically 27.5 years for residential rental property. This deduction can significantly reduce your taxable rental income, even if you are generating positive cash flow.

Making Your Decision

The choice between selling and renting your home when moving out of state is personal, influenced by your financial situation, risk tolerance, and long-term objectives. Consider your comfort level with the responsibilities of being a landlord, particularly if you opt against hiring a property management company. This involves a commitment of time and effort to address tenant needs and property upkeep, even from a distance. Your financial liquidity also plays a role; selling provides a lump sum of cash that can be used for a down payment on a new home or for other investments.

Retaining the property as a rental means your capital remains tied up in the real estate, though it may generate passive income and appreciate in value over time. Evaluate your long-term investment strategy and how the property fits into it. Some individuals prefer the diversification of liquid assets, while others view real estate as a stable component of their portfolio. The anticipated future housing needs should also inform your decision.

If there is a possibility of returning to the area, holding onto the property might be appealing, offering a familiar residence should you move back. Conversely, if your relocation is permanent, the long-term commitment of managing a rental might not align with your goals. Ultimately, weighing the financial costs and benefits, alongside the practical and emotional aspects of each option, will help you determine the most suitable path for your unique circumstances.