At some time or another, usually multiple times, New Yorkers decide to move due to life events. For some, it’s a growing family that needs extra space. Others such as empty nesters, it’s a decision to downsize for economic reasons or because they no longer need a large apartment. For others still, a new job or desire for a change in scenery sees them move out of NYC or just to a different neighborhood. If you’re a homeowner, the decision to move, for whatever the reason, can leave you asking a big question, should you sell your NYC apartment or rent it out?
Before you sign an exclusive listing agreement with a sales agent, here are some questions you need answers to when deciding whether to sell or rent out.
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Will you ever move back in again?Will you ever move back in again?
Can you see yourself wanting to move back in one day? If you have a family, it could serve as a retirement home one day. It could also serve as a home for your child if they plan to study and work in NYC after graduation. If for whatever reason, you can see yourself or a family member making use of the apartment, then you should consider renting it out for a period. You can always sell at a later time, and there’s also the gains from appreciation to consider.
Can you rent it out?Can you rent it out?
If you don’t see yourself every using the space, then check that you actually can rent it out. What rules govern the building will decide this. If your apartment is in a co-op building, then you need to check the building’s sublet policy. Most co-ops have strict rules on subletting such as requiring that you have already used it as your primary residence for 2-3 years and then only allowing sub-letting for 1-2 years. Some co-ops don’t allow sub-letting under any circumstances. If your apartment is a co-op, then it’s more likely that you’ll want to sell.
Condos have little to no restrictions on subletting. This flexibility is one reason why condos are more expensive than co-op apartments. That said, you’ll still want to check the political temperature of your building’s board. Are they open to more renters or are they starting to implement fees and review processes designed to discourage subletting?
Can you afford to rent out the apartment?Can you afford to rent out the apartment?
So you’ve checked the rules, and you have the green light to sublet the apartment. Now it’s time to check if it’s a financially viable option. To find out, ask yourself these three questions:
- Do you need the money that’s tied up as equity in the apartment for something else?
- Will the potential rent be enough to cover expenses and make a profit?
- Do you have enough capital reserves to handle unforeseen expenses?
Have a real estate broker with experience in your neighborhood. Evaluate the property to determine both its resale value and rent potential. In such a crowded market as New York, you’ll have little trouble finding buyers or renters, but you’ll want to determine which option works best for you. When considering selling, you need to think of closing costs and capital gains taxes. When considering subletting you need to think of maintenance costs and potential vacancy costs. Which one do you stand to gain the most from?
You’ll also want to know what the local market is like. Are there other rental properties in your neighborhood that have better amenities and offer better incentives then you can? If the rental competition is too high or profits are almost negligible, then you’ll probably want to talk with a listing agent. But if the potential for profit is there and you have enough savings to cover unexpected costs then move on to the last consideration.
Do you want to be a landlord?Do you want to be a landlord?
Being a landlord isn’t for everyone, especially if you’re not going to be living locally anymore. You’ll need to interview and screen prospective tenants, organize lease renewals, collect and account for monthly rents and expenses, and, potentially, answer late-night phone calls about broken boilers or HVAC systems. You need to be ready for that and if not then be willing to pay the extra costs of hiring a property manager.
When deciding whether to sell your NYC apartment or rent it out, you should first and foremost consult your tax attorney and financial planner. Everyone’s situation will be different so go for what makes.