Should You Sell or Rent Your Property?

In December 2017, Ashish Raghav bought a premium 3BHK home valued at Rs 1.1 Crore on Kanakapura Road. But after staying there for just about eight months, Ashish got a job offer in Denmark that he just couldn’t refuse. He had to relocate to Denmark. Now, what best can he do with his home?

Ashish thought it best to sell the house and even got a prospective buyer willing to pay Rs 1.3 Crore for his property. Is selling at this price a good option? Or should he wait for the price to increase further? How about putting it on rent? How about renting it and investing that money in fixed deposits and earning interest out of it? Ashish is in a serious dilemma!

In order to find the best solution, let us understand each case.

Case I: Selling the apartment

Considering the present real estate market, Rs 1.3 Crore is a good price for a 3BHK on Kanakapura Road. This roughly boils down to 18% appreciation in just eight months. In the current scenario, selling it at this price seems like a good option. Isn’t it?

In case you are moving out permanently, selling your house might be a good idea. The capital gains you make from selling the property is considered as profit and falls under taxable income. However, keep in mind that you will lose less money paying capital gains tax if you sell the property after two years (long-term). Besides, you can avail more tax rebates on long-term capital gains.

Case II: Wait for the price to increase

It is often said that in the asset market future outlook is more important than past performance! Well, it is true. However, one must understand that maintaining a property requires additional expenditure. Unless you are in the same city, it becomes a bit difficult to manage the property. And if a property is left alone, it will just continue to lose its value.

Also, appreciation potential of a property depends on various factors. These include

• Infrastructure development
• Employment opportunities
• Improving connectivity
• Social infrastructure

Further, as mentioned in Case I, the market is flooded with an array of options in the primary segment at a competitive price. Thus, finding a prospective buyer at for a resale property is not as easy as it sounds.

Case III: Renting out the property

If you are moving out of the house temporarily, say for a few years, and plan to move back to the same city/locality, you might want to consider renting the house during that period.

Renting the house works out comparatively cheaper as you don’t have to pay any sales commission, capital gains tax, and other taxes involved.

This is also the most convenient way if you are looking to earn some extra monthly income. While renting may be good for some, there are certain downsides to it as well. Finding and dealing with tenants are some of the major hassles. Also, it comes with additional maintenance and repair costs. Both the tasks require a lot of patience and time from your end over months and years.

While online real estate portals have simplified a few things, there are always grey areas. In case you are renting out your property, hiring a property manager would be a good idea.

Lastly, one should also factor in fluctuations in the rental market. While you may expect a certain amount of rent in the coming years, there is always the possibility of rental values remaining more or less stable.

Case IV: Using rental income for investment in other instruments

If you have bought the house on a home loan, renting it out is a great option as you can use the monthly rental income to pay off the EMI. You could plan to sell the house once the EMIs are over or keep it until your retirement.

Some experts also suggest that one should invest the rental income in fixed deposits and reap interest. However, with dwindling interest rates, many investors have now begun to resort to other alternatives such as government schemes that also come with tax benefits.

(Read More: Gold or Real Estate: What Is the Right Investment for You?)

Our verdict

For Ashish, Case I (Selling the apartment) is most likely to be a safer bet.

Generally, investing in another property or government bonds/infrastructure bonds is a good option to save tax on capital gains. Also, always consider your financial situation before taking any decision.

Further reading:

EMIs Vs Rentals? Is Buying a Worthy Option?