Moving Up From Your Aurora Home? Should You Rent It Out or Sell It?

Moving Up From Your Aurora Home? Should You Rent It Out or Sell It?

By Mike Ferrante, Broker Associate, The Mike Team at LPT Realty

With the 30-year rate back above 7%, a lot of homeowners who locked in a much lower rate are asking the same question when they move up: why not keep the current house and rent it? Sometimes that's a smart move. Sometimes it quietly costs more than it earns. Here's how I'd think about it if your current home is in Aurora.

Start with the tax break you might give up

If you've owned and lived in your home for at least two of the last five years, federal tax law generally lets you exclude up to $250,000 of gain on the sale ($500,000 for most married couples filing jointly). That's a big deal on a house you've held for a while.

Renting it out starts a clock. Once you move out, you generally have about three years to sell and still meet the "two of the last five years" test. Wait longer and the exclusion can disappear. And depreciation you take (or could have taken) while it's a rental is typically taxed when you sell, even if the rest of the gain is excluded. Talk to your CPA before you decide. This is the part that most often changes the answer.

Check whether your neighborhood allows rentals

Many Aurora neighborhoods are governed by homeowner associations with recorded declarations, and some declarations restrict or regulate leasing. Read yours, or ask the association, before you promise a tenant anything. On the city side, Aurora doesn't require a municipal point of sale inspection, which keeps a future sale simpler.

Run the real rental math

Don't compare rent to your mortgage payment and call the difference profit. A more honest monthly picture:

• Start with realistic market rent for your specific house, based on actual comparable rentals.
• Subtract principal, interest, taxes and insurance. Your insurance will change once it's a rental. Landlord policies differ from homeowner policies.
• Subtract a maintenance and repair reserve. Tenants use a house harder than owners do, and older systems don't wait for a convenient month.
• Subtract vacancy. Even good rentals sit empty between tenants.
• Subtract management, either a property manager's fee or the value of your own time and weekends.

If what's left is thin or negative, the house isn't an investment. It's a second mortgage with a tenant.

Ask whether you want to be a landlord

Between my own investing and my background in property management, I can tell you the numbers are only half of it. Landlording means late-night calls, turnover, and a house you can't fully control. Some owners enjoy it and build real wealth that way. Others find out a year in that they'd rather have the equity working for them in the next house.

When keeping it makes sense, and when selling does

Keeping it tends to make sense when the rent clearly covers every cost with room to spare, your association allows it, you're comfortable being a landlord, and you've planned the sale timing around the tax rules with your CPA.

Selling tends to make sense when you need the equity for the move-up purchase, when the rental would only break even, or when you'd be relying on appreciation to make it worthwhile. In that case, the tax-free gain you can lock in now is often the better return.

If you're moving up from an Aurora home and weighing both paths, we can help you price the sale and pull real rental comps so you can compare them side by side. Reach The Mike Team at www.21mike.com, call +1(216)373-7727, or find us on Google.