It is quite likely that as a real estate investor, you have in your investment kitty quite a number of properties. If there ever comes a point in time where you’re contemplating which makes the most business sense, whether to sell outright one of your residential properties or to rent it out, then you’d find this article a worthwhile read.
Many people consider renting out their home instead of selling it because they may not be able to get the price they want in their bid to sell outright, or they may want to get into the real estate investment business. Renting out a home may seem simple enough but it takes work and there are several things to consider: maintenance, vacancies, property management and more.
If the rental option is calling out heavily to you, do bear this in mind: Renting out a home is not an “easy peasy” deal, a lot of things that can go wrong! Some properties make great rentals and some don’t. Some properties, no matter how hard you try, simply do not make money because the rent is not high enough to cover all the expenses and this makes no business sense. It takes a lot of time and work for real estate investors to figure out what good rentals are, find them and manage them. The biggest mistakes people make when renting out their home is not taking it with levity, not doing their research and truly understanding the process of managing rentals.
If you can find a good rental, they can be a fantastic investment. A good rental property will make you annual income, or even monthly, if you list your property on some of the monthly renting platforms that are abounding. Added to that is the fact that if you keep the property long enough, there is a very good chance it will appreciate in value as well. You do need to work out your cash flow numbers. You also need to work out the price-to-value ratios, which is simply what the home will rent for compared to what it is worth. Asides taxes, you also do need to consider other expenses, maintenance and vacancies. When all of these have been figured out, then you’ll see if it makes sense to turn your property into a rental.
Another plus for the renting option is that simultaneously, your house is going up in value while your rent-appreciates. While you own the house and it is making you money annually or monthly, you will also see the value increase. It’s important when investing in any real estate, to invest in something that you can add value to. The fact is, given time, almost all houses will go up in value.
However, on the flipside, a lot of people dream of owning rentals but have no idea what it really takes. It is hard work and takes time to learn all the ins and outs of how managing rental properties work. Do not jump into real estate without doing some research and learning what it will take. It is not all money and freedom. All it really takes is the wrong tenant, with nightmarish ordeals of trashing your home to watch your investment get wrecked and you incurring costs out of pocket. A property that could be an amazing rental with the right management may turn out to be a horrible investment with the wrong management.
Are you going to manage the rental property yourself, or if there’s more than one rental property, are you going to enlist the services of property and facility managers? To be a landlord you must be tough, take your time choosing tenants, perform an in-depth background check and keep track of the properties. The biggest nightmare tenant stories usually come from landlords who have no clue what the business is about.
When it comes to selling your property outright, the pros is that it saves you time. It’s pretty much touch and go, done and dusted, and on to the next one. You might have to find a real estate agent or realtor and may need to do a little work to get the home ready to sell, but you may have to do these things to rent the home as well. When you sell the home, you will no longer have to worry about the tenants, the property management, or the expenses.
When you sell, you get your cash and your profit upfront. With a rental, the money comes in for a very long time, but it comes in very slowly in most cases. If you have a lot of equity, you will get a big chunk of money right away. Of course, it is wise to invest that money and not just spend it recklessly.
However, it does require some slice of work and effort to sell a property as well. Houses do not magically sell themselves unless it’s most likely a distress sale or giveaway. If you’re enlisting the services of a realtor or agent, you’re definitely going to pay commissions that’ll be coughed out from your profit, but oh well…Also, to have your home put its best foot forward, you’d need to do it up nicely. It doesn’t need to be finely dressed to the teeth, but bear in mind that buyers are choosy and might require updates as well as the major structural and mechanical items to be in good shape.
So, which makes the most business sense after all has been done?
In all honesty, it’s a matter of perspective and if you’re in for the big picture and long-term game, after painstakingly doing the numbers of that specific property. If the analysis adds up, rentals can create wealth and steady income for you but it’s no walk in the park. It requires research, work and tons of experience to work the rental game. So, stack up your numbers and see what the odds are, so you can make the best, most informed decision as to whether to rent or sell.