If you own a home you’re thinking of selling, you might earn more over time by renting it out. This calculator from Forbes helps you decide which is a more lucrative option.
Forbes explains how it works:
It divides the net operating income from renting the property by the expected sale price of the house, giving you an investment yield — like a bond yield. If this yield, also called a “capitalisation rate,” is less than what long-term Treasurys are yielding (around 5.7%) you’d probably be better off selling your house.
You simply enter in a few details, like sale price, taxes and income, and you’ll get an idea of what your “capitalisation rate” looks like.
Of course, there’s more that goes into your decision (for one, closing costs aren’t calculated). Still, it gives you a decent general idea of which is the better option, assuming you’d invest the money from your home sale in bonds. Check it out at the link below.
Comments
5 responses to “This Calculator Helps You Decide Whether To Rent Out Or Sell Your House”
An interesting thing from an American website (where they don’t have negative gearing) makes a sell recommendation for anything where the monthly costs are more than the rental income.
I put the rent at $1,800 with 0 costs and $520,000 sale price & it still says to sell…
As already mentioned, this is a US calculator, so isn’t all that appropriate for Australians. Secondly, a quick search will show that the current yield for 5 year (Australian) government bond is around 2% and 10 year around 2.5%. This dramatically changes the equation.
Futhermore the most minute amount of research using the Wayback Machine (https://web.archive.org/web/20010131152300/http://www.forbes.com/fdc/rentorsell.shtml) shows us that this calculator hasn’t been updated since 2001, which explains how their rate seems so drastically wrong.
LifeHacker, you really should have researched this more thoroughly (i.e. more than zero research). Please at least preface your article with an explanation that the calculator doesn’t take negative gearing into account and that readers should ignore the Buy/Sell recommendation (given that it’s based on 15 year old data) and instead research current bond yields and make the comparison for themselves.
“Rent out” means ‘let’ , presumably.
I think that renting out your house is a lot more complicated than this calculator makes it out to be. And there are a lot of different levels of rental agreements too. For example you can just rent out one or two rooms and keep your things in storage at the house, or rent out the whole place entirely. The income will correspond accordingly.