It is very important to have a well thought-out plan when starting the real estate investment process. One question that comes up immediately is a pretty simple one: should I sell the property or rent it out? The answer isn’t always simple, though.
4 Factors to Consider When Deciding to Sell or Rent a Property
1. Your Overall Strategy
Perhaps the most important things to look at are both your short-term and long-term financial goals. Are you looking to make a profit and re-invest, or are you searching for a plan that will provide a steady cash flow? If the latter is what you’re looking for, you should probably rent the property out. However, if you want to make a quick profit so you can move on to a new project, selling may be your better option. Also, you may want to rent the property out, but you may not be able to afford it. There are many things to consider here, but your goal with this decision should be to maximize your return either way.
2. Return on Investment
You should analyze market trends before deciding whether a property would make a good rental or a good flip. This analysis should be based on the average sale price in the area versus the average rent rate while taking into consideration the level of rehab required for both scenarios. Also, your financial situation and goals have a lot to do with this decision. If you have an opportunity to buy a property that makes a good rental, but rentals are not part of your business model, it may make sense to consider getting the property under contract and then wholesaling that deal to other investors for some quick cash.
3. Landlord Responsibilities
When you decide to rent out your property, you become a landlord, which brings along with it many additional challenges and responsibilities. While there are numerous challenges that you must consider when evaluating whether to become a landlord or not, the potential for long-term wealth building and residual income cannot--and must not--be ignored. Additionally, property management companies will handle the majority of the headaches for a manageable price.
4. Necessary Repairs
Once you choose a property to invest in, you map out the repairs that are necessary. People that rent houses will not be too concerned about having top-notch repairs done, while those that are looking to purchase a property will expect everything to be in the best condition possible—and will bring in an inspector to ensure that. This is in no way saying that you should skimp on repairs with a rental property, but it may allow you to delay some repairs and not over-emphasize cosmetic repairs. Evaluating comparable sales or leases and the level of finish is an essential part of your plan. Also be sure to look at comparable properties in the neighborhood to ensure you aren’t going overboard with your rehab efforts.
Are you having a difficult time deciding whether or not you should put up a “for sale” or a “for rent” sign up? Catalyst Funding can help you with that and accelerate your future in real estate. Give us a call today at 832.648.3626.