Sell the house or rent it out? What to do
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The decision whether to sell a home or to rent it out has always been tricky, but on Long Island, parts of which were devastated by superstorm Sandy, there are many obstacles to either choice.
There are more renters in the region because many lost their homes, so there are many opportunities for homeowners to lease out their properties.
At the same time, the housing market seems to finally be picking up, so it may be easier to sell a home this spring, the traditional start of the home buying season, than in recent years.
From Jan. 1 to Feb. 2, agents from Redfin, the mostly online real estate brokerage, conducted 53 percent more home tours on Long Island than they did during the same period last year, demonstrating that many more people may be looking to move. At the same time, the housing supply on Long Island from January 2012 to this January fell by 20 percent, according company, which may mean that luck could be turning for sellers.
Before making a decision, dissect the financial and emotional fallouts of both choices, experts say.
"There are many important as well as surprising things to consider when deciding whether to rent or sell your home," says Jamie Rosner, partner in the law office of Keegan & Keegan, Ross & Rosner LLP in Patchogue and Mattituck.
1. What is your goal?
The first thing homeowners must determine is whether they want the immediate cash that follows a home sale or whether they want to potentially make more in the long run via renting.
"Are they selling their home because they want to retire and perhaps live someplace more cost-effective?" asks Steven Labiner, certified financial planner with AXA Advisors LLC in Woodbury. This has long been a popular question with Long Islanders who are considering relocating to Southern states like Florida and North Carolina, where the cost of living is lower.
Other questions that homeowners need to ask themselves, whether they are moving off the Island or not: Are they planning to use any of the equity in the home to subsidize retirement cash flow? Are they looking to reduce current expenses? Do they have the financial ability to hold the property with the expectation that the real estate market is going to increase?
2. What can you afford to do?
Knowing your current monthly living expenses is essential, says Labiner. Track how much money you're spending. Then, figure out if you can afford to rent out your home or if you need to sell.
"Would the rental income cover their mortgage payment, property taxes, maintenance and other unexpected costs? . . . If they sell their home, where would they live? What are the estimated costs associated with the new home?" Labiner asks.
If the home was purchased at the height of the market and still carries a large mortgage, there's a chance that rent may not even cover the house's expenses, says Reena Gulati, a real estate attorney and owner of Reena Gulati PLC in New Hyde Park.
If residents need help answering these questions and crunching the numbers, there are local and federal sources that can help. For those with questions about their mortgage, the Long Island Housing Partnership offers free counseling in more than 150 languages.
For those with resources who want advice on whether to sell their home or rent it out, an accountant can be a source from a tax-planning perspective while a real estate agent is more of an expert on housing and rental prices.
And a financial professional can work in conjunction with the accountant and the Realtor to offer a broader perspective.
A financial professional would look at the big picture, such as income and expense needs and could run forecasts based on assumptions," Labiner says.
3. Would it be legal?
Before even thinking about renting out a home, residents may need to apply for a permit, Rosner says. Answers about this process and the permit application can be found in the home's town or village code of regulations (find this at the local government office).
Violations of these rental codes can result in significant fines. The whole permit process can be time-consuming, depending on the rules of the town. Once the homeowner has submitted the permit application, it could take a few days before the town grants a permit.
4. Do you want to be a landlord?
Some people may not be cut out for the responsibility of renting out a home, says Robert Campbell, associate professor of finance at Hofstra University. It can affect you financially and emotionally -- and it's hard to plan for every factor that may come into play with a bad tenant who could potentially destroy your home and cease paying rent.
"The emotional, financial and legal risks of renting out are immense, incalculable and impossible to predict or control," Campbell says.
If anything goes wrong -- electrical problems, toxic substances (liquid or airborne) and structural issues that could lead to damage -- the landlord is responsible, Campbell says.
There are ways to minimize problems, and a licensed inspector combined with high-liability insurance might help. The length of the lease also may protect or harm the homeowner.
Yearly leases may sound more secure than they are, Gulati says. If the renter stops paying the rent, he can still live there until the end of the lease. Fighting a legal battle will be costly and time consuming.
"Sometimes, it's beneficial to do a month-to-month because you can give a 30-day warning and then you can get them out easier," Gulati says.
The lease terms also are important. If the landlord plans to show a home to potential buyers while it is being rented, then the number of visits by potential buyers must be outlined in the terms of the lease. "If it's not in the lease, they're not required to let the landlord in," Gulati says.
Making sure the lease is specific is important -- and it could wind up costing the landlord thousands of dollars if the lease isn't airtight.
5. Would you have regrets?
"To help lower your stress, consider which decision you'll enjoy more, not which is the right decision," says Anthony Centore, chief executive of Thriveworks Counseling, a Massachusetts-based company that provides therapist referrals nationwide.
This might make the best choice more apparent.
This Woodbury home is large enough for a family and for the in-laws. It has 5,600 square feet containing six bedrooms, 4 1/2 bathrooms and a separate guest suite with its own kitchen, living room, bedroom and bathroom. The grand, two-story entrance leads to the formal living room. The asking price is $1,495,000. Listing agent: Gary Baumann, Douglas Elliman Real Estate, 631-767-5894
This large, private Huntington home is in the secluded West Hills area on an acre of land. It has four large bedrooms and 2 1/2 bathrooms, along with a covered deck and two-car attached garage. It's close to the parkway and to the train. It's available to rent for $3,850 a month. Listing agent: Peter Demidovich, Realty Connect USA, 516-714-4140
Crunch the numbers
See if you can profitably rent out your home or whether you need to sell at this online calculator: forbes.com/fdc/rentorsell.shtml.