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So, you’re ready to downsize and move into a retirement community or closer to your grandkids. Should you sell, or consider renting out your home?

Like many of life’s big decisions, the answer depends on your situation, goals and personal preferences. Both options offer advantages — and potential drawbacks — that you must weigh carefully.

First things first: Determine if your home makes a good rental. Start by considering your home’s condition, layout, lot and location.

Condition: Tenants need a safe place to live that is properly maintained. If your home’s roof or furnace is nearing the end of its useful life, you may need to fix those things or budget for these expenditures as a landlord, just like you would if you were continuing to live there.

On the other hand, if you’ve already invested in a new roof or replaced the HVAC, renting may make more sense, as you’re not likely to get a corresponding bump in selling price to compensate for these large capital expenditures.

Layout: Over the last few decades, living habits and tastes have changed. If your home is older and you haven’t invested in updates, it may be hard to sell, as buyers can be pretty picky.

Renters are more forgiving about property condition and outdated layouts.

Lot: Does your yard require a lot of maintenance? You can’t count on tenants to meticulously maintain your landscaping. In general, a property that needs constant maintenance beyond lawn mowing does not make a good rental property.

Location: Not all locations provide the market conditions ideal for renting. Here are just some of the location-related questions you need to consider:

Will the average rent for your area cover your home’s monthly expenses? Do you live in an area convenient for commuting? Do you live near great schools that would be attractive to families? Is there adequate parking? Is there storage on site? If you’re governed by an HOA, is renting allowed by the association’s bylaws?

These are the big considerations. A real estate agent with experience and knowledge of your local area can help you think through and analyze your home’s rental suitability.

Does it make financial sense?

Next, figure out if it makes financial sense to rent your home. The biggest consideration is determining if the numbers work.

To find that out, calculate your anticipated annual rent and deduct your total annual expenses. You should include all fixed costs (such as taxes, HOA, insurance and mortgage payments if you still owe money on the property) and fair estimates of variable expenses (such as maintenance and vacancy costs).

Only if you’re cash flow positive each month does renting make sense.

The pros

If you’ve concluded that your home would indeed make a good rental, here are the pros and cons of owning a residential rental property instead of selling:

—Monthly income from rental payments. Historically, rental real estate, when acquired and managed wisely, has been a powerful builder of wealth. Renting can provide you with a steady flow of extra monthly income.

You can look at rental websites like Hotpads and Trulia to get an idea of what types of rental properties are available in your area.

You can also find online rental calculators, like Rentometer, that will help you guestimate the rent you can charge. And don’t hesitate to consult with a local real estate agent who has access to real-time and historical rental data.

—Tenants pay off your mortgage. If you still owe money on your home, your tenant is essentially paying down the mortgage for you.

—Sell in a better market. Many housing markets are still recovering from the sub-prime lending bubble that burst a decade ago. If you bought at the height of the market frenzy between 2005 and 2008, your home may be worth less than you paid for it. Holding instead of selling — and collecting rental income in the meantime — can be a great strategy.

—Defer the expense of needed home improvements. Maybe your home is outdated or requires some home improvements that you don’t have the money for now. You can budget for the updates and upgrades from the rent you’re collecting each month, make the improvements later, and potentially get a higher sales price for your home in the future.

—Rental real estate typically provides an inflation hedge and market appreciation. Residential property is a tangible asset that always has a value. It can’t really go to zero like other investments can.

As inflation drives up the cost of other consumer products, rents typically rise. And modest annual rent increases can improve your monthly cash flow while the cost of owning stays the same each year.

Some housing markets seem to be almost guaranteed to get stronger in the next few years. If you are in such a market, and you feel like there is a good chance your home will increase in value significantly, then renting now will grant a bigger payday later.

—Rental property ownership offers some powerful tax deductions annually. Each year, you claim a depreciation write-off at the same time the value of your home is likely appreciating. And if you have a bad rental year, you can deduct up to $25,000 in rental property losses, which decreases your tax due on other income sources.

—Renting allows you to postpone selling costs. Transfer taxes, title work, sales commissions and attorney fees can add up to an estimated 8% of your sales price. If you’re somewhat undecided about your future plans, renting your home allows you to postpone the cost of selling and keep your options open.

The cons

However, there are some downsides of renting rather than selling your home:

— Being a landlord is not for everyone! Dealing with tenants and property management is not something everyone is cut out for. And that’s okay. If the prospect of being a landlord gives you the willies, you might reconsider.

Rental ownership is often stressful because you have no control over what tenants do in your home. You may get great tenants who pay on time and respect your property. Or you may get tenants who pay late and wreck the place.

Even if your tenants are decent, you still need to manage the process, which might stress you out.

Of course, you can hire a property management firm to take care of placing tenants, collecting rent, managing maintenance and repairs, and handle the rental for you. Just be sure to factor in the expense of a good property manager, which typically runs between 8 and 10% of your rental income.

—Renting your home ties up a substantial amount of money. Real estate is not a liquid investment that you can quickly turn into cash if a financial emergency arises. If you decide to rent, you’ll want to make sure you have enough liquid assets from other sources that you can quickly and easily tap into for emergencies.

—You may need additional insurance. As a landlord, you could be liable for accidents that occur on the property. You’ll need to make sure you’re adequately insured. An umbrella liability policy does the trick and is relatively inexpensive for a large amount of coverage.

—You may miss out on taking advantage of today’s seller-friendly tax laws. Selling your home now allows you take advantage of current tax laws that exclude your sale from capital gains tax up to $250,000 for an individual or $500,000 for married couples. For most homeowners, that means you can avoid a sizable tax on a huge sale.

Of course, tax laws can always change, and this benefit might go away. You just never know what will happen in Washington!

Few homeowners consider the benefits of renting their residence instead of simply selling it. It’s always good to look at all your options when making an important financial decision.

Ruth Lyons is a Residential Realtor and Senior Real Estate Specialist with Sachs Realty. You can reach her at RL@sachsrealty.com or visit her website at www.ruthlyons1.com.