If you own a home and are moving soon, you’re probably in the process of thinking through your options for your soon-to-be old house. One of the most obvious choices is to sell the home. You’ll put the home on the market, sell it to a new buyer, and then you’re done. But that’s not the only way to go. Depending on your unique situation, it also might be beneficial to keep the house and turn it into a vacation rental property. While that might sound daunting to become a vacation rental owner, there are property management companies out there who make it very easy for homeowners to run a rental property from afar.
Knowing that you’d have help managing the vacation rental if you needed it, here are 5 factors to consider when deciding if you want to sell your home or turn it into a rental property.
With selling, you may be able to make a profit on your home depending on how much it’s worth today versus when you purchased it. To figure out how much your home is actually worth, you can start with popular real estate sites, like Zillow, to get an estimate on your home and see what other properties in your area are selling for. You could also talk to a local real estate agent who is familiar with your market and what buyers are looking for to get a more accurate number. Upon selling, you’ll receive a large sum that you can then use for the down payment on your next house (or for whatever you want!).
If you choose to turn your home into a vacation rental when you move, you have the potential to make a profit month after month for years to come, rather than all at one time. However, this depends on the type of home you own and the city it’s in. If you’ve got a beachfront home in a popular tourist location, you may have a better chance at making a profit than if your home was in a rural town that doesn’t see much tourist traffic. Use a tool, like this one from HomeAway, to see how much money you could bring in if you choose to rent out your home. Also, take a look at sites like Airbnb and VRBO to see what similar properties in your area are renting for per night. Once you have an estimate, make sure that this number will cover the mortgage for the home, plus any additional costs, like utilities, insurance, HOA dues, booking fees, and property management fees. By going this route, you can rent the home for as long as you want and then monitor the market and choose to sell it when you think you’ll see the biggest return.
If you’re selling a house, you most likely won’t have to pay taxes on your gains of up to $250,000 if you’re single and up to $500,000 if you’re married. There are few circumstances where you might have to pay taxes. These are situations like if you weren’t using the home as your primary residence or if you owned the house for less than 2 years in the 5-year period before selling (meaning that if you’re selling the home in 2019, you would have to pay taxes on your gains if you owned the home for less than 2 years from the 2014-2019 period). To determine if you’ll have to pay taxes on your gains, you can use an online tool, like this one from NerdWallet. We also recommend talking to an accountant in your area before making any decisions.
For a rental property, taxes get a little trickier but are still manageable. If you rent out your property for less than 14 days throughout the year, you don’t have to pay tax on any income you earned from it. If you’re planning to rent your house for more than 14 days, then you will have to pay taxes on any income you earn, but the good news is that you can also take deductions related to managing your property. Other taxes you may have to pay include property taxes and any local sales or lodging taxes. To get a better idea of what taxes rental property owners pay in your area, reach out to a few of them or speak with an accountant.
3. Use of the home
If you’re moving away permanently and not planning on returning, selling might be the better option for you.
But, if you’re moving to a new city, think about your future and if you’re ever going to return to your old town. Maybe you’re moving for a temporary job transfer or maybe you’re checking out a new place for a few years but know you’ll want to move back eventually. If this is the case, it might be better for you to hold onto your home rather than sell. In these years that you keep the house, you could turn it into a vacation rental and make some extra money in the meantime. Plus, if your home is in a location that you’ll want to vacation at, you’ll always have a property you can stay in rather than needing to find accommodations every time.
Obviously, if you choose to sell your home, you won’t be responsible for any future maintenance (but you may choose to make improvements before selling to make the home more appealing to today’s buyers).
If you keep the home and choose to rent it out, you’re still going to be responsible for upkeep and maintenance if anything breaks (like the A/C). By hiring a property manager, you can delegate these tasks to another party. A good property manager will keep track of all preventable home maintenance and make sure the vacation home is always ready for guests. At TurnKey, we match all of our homeowners with a Home Care Supervisor who is responsible for checking on everything in the home (like leaks) regularly so you have peace of mind. This service is especially helpful for homeowners who live in a different city or state than their vacation rental property and can’t travel back frequently to do small maintenance tasks, like changing light bulbs.
Similar to maintenance, you won’t have to put any time into the home or guests if you sell the property and it’s not your responsibility anymore.
By operating your home as a vacation rental, you’ll have to deal with guest relations. This means you’ll be answering guest questions, organizing bookings, and potentially meeting guests to welcome them to the property. However, this is another task that you can delegate to a great property manager. TurnKey, for example, has local teams that are ready to answer your guests’ questions 24/7. Before the guest arrives, the local team provides them with every logistical detail they need for their stay, like parking information and local recommendations. If there are any emergencies during the guests’ stay, a reliable property manager should respond and be able to take care of it. They’ll also reach out to guests after their stay and make sure you get a review so your property continues to stand out.
Selling vs. A Vacation Rental
Choosing to sell your home or turn it into a vacation rental is a big decision. We recommend weighing all 5 factors above and seeing what may work best for your lifestyle. If you want to go the rental route, but are unsure if you can manage it all yourself, talk to a property manager to see what services they offer and how they can take some responsibility off your plate. You can also talk with a financial planner and other rental property owners in your city to see if turning your home into a vacation rental is the right decision for you.