To rent or to sell? Many property owners sometimes find themselves in this dilemma when they have a second home or property that they don’t live in or use, but also are not ready to sell. But before the time comes to answer that question, property owners should take a few factors into careful consideration before deciding which path is the right one for themselves in the long run:
Whether you’re an investor looking to turn a profit or just an average Joe seeking to supplement your retirement, there’s nothing more appealing about renting out your property than watching a steady stream of income flow into your bank account. Assuming your property generates a positive cash flow, you can use your tenant’s rent money to cover your property taxes along with maintenance and utilities costs, all the while paying off your mortgage (and possibly even netting a profit).
If you live in a major metropolitan city where there is a high demand for rentals and a shortage of housing, becoming a landlord can be very financially attractive. According to Forbes, the average monthly apartment rent in San Francisco is now $2,802, the second highest in the nation among metropolitan areas. Due to low vacancy rates and high demand, the metropolitan markets become even more favorable to the property owner, giving them greater pricing power and the ability to generate significant cash flow.
Although the appreciation of a property is never guaranteed, you may want to hold off on selling your real property if you believe its value will increase with time. States where property is in high demand, such as California, have seen drastic surges in real estate values over the past five years. And the best part? They’ve shown no signs of slowing down.
According to Zillow, California home values have risen 5.3 percent over the past year alone and are expected to rise an additional 2.7 percent within the next year. Holding onto a property is an attractive option to many owners because even if some money is lost month to month due to maintenance costs and taxes, the return on the sale of a property that has risen in value at a later date may be substantial.
Side note: According to RealtyTrac, the markets with the fastest-accelerating appreciation include Houston, Texas (21 percent annual appreciation this year); Austin, Texas (16 percent); Augusta, Georgia (15 percent); and Greensboro, North Carolina (14 percent).
Although landlords can’t dodge paying Uncle Sam, they can use the tax code to their advantage. Landlords can claim a litany of tax deductions including mortgage interest payments, local and long distance travel, rental property expenses, insurance, and wages for employees, among others.
Although you can earn a steady flow of revenue from renting out a property, you will almost inevitably run into the problem of unexpected costs. While many properties require minor patch-ups and little upkeep, others may need significant repairs. Major problems, such as a busted water pipe or a leaking roof, aren’t usually fixed by the “do-it-yourself” method, and hiring professionals to perform repairs may cost substantial amounts of money. If your home becomes a problem property and is depreciating in value, it may be best to sell.
A bad tenant can be worse than no tenant at all. Problem tenants can cost you by damaging your property or paying their rent late (or not at all), and can bring the overall value of your building down by harming its reputation. The only upside about having a nuisance renter is that you can terminate their tenancy and evict them.
Cash out on top
When the market value of your property drops, it may make more financial sense to hold off on selling and wait for its value to rise again. When your property does appreciate to the point where selling it will yield the greatest possible returns, it may be worth cashing out on top. If you wait too long to sell and the value of property in your area falls, you may lose out on significant gains.
Peace of mind
You’re retired and have hung up your hat, so why go back to work? Renting your property is akin to running a business and with that responsibility comes new daily demands that may disrupt the simple life of retirement. You can hire a management agency to do all of the work for you, but it can dig into your profit margin. If you simply lack the time and energy to be a landlord, do away with the anchor and set sail.
The major downside of selling a property is that it can be difficult to do. Between waiting for the right time to sell, hiring a real estate agent, finding the right buyer, and closing the deal, the entire process can become a nightmare.
Luckily for sellers, if you’re ready to unload your property to a prospective buyer and want to outline the process for the sale, this process has become significantly easier with the help of Property Sale Agreements. These can you help avoid any missteps that could delay your closing. Once a party signs a Property Sale Agreement, they can’t back out without a good reason, or they may be subject to penalties.
So homeowners… Will you be renting or selling your property?