So, you are moving and don’t know what to do with your house.
Here’s a very typical question we get from homeowners inquiring about residential property management and leasing services for the first time: “My company is transferring me out of state, and I don’t know whether I should keep my house and rent it out or sell it. I’ve never done anything like this before. Can you help me to understand my options?”
Take All Advice with a Grain of Salt
The first thing I tell them is that they are the only one who can make that decision. After all, they are the only one who has a complete grasp on their financial and life situation. I caution them that 99% of property managers will say they should rent, and 99% sales brokers will say they should sell. They need to think through whatever advice they are given, making sure that it is the best solution for their unique situation. It’s always smart to check with your personal financial and legal advisors when contemplating such a decision.
Perhaps unique to me, because of my training as an attorney, I then shift into “counselor” mode and start asking probing questions.
Are You Strapped for Cash in Any Way – Do You Need the Money Now?
My perspective is that if you need the money, then sell the house (maybe – see my next question before deciding). If you’ve got medical bills, college expenses, or any other expenses that are eating away at you financially, selling might be the way to go.
How Much Equity Do You Have in the Property?
The amount of equity you have in the property naturally helps you to make your sell vs. rent decision. For example, suppose you have $50,000 invested in your condo unit. That amount of capital gives you something to play with. If you are strapped for cash, selling the property can help you address the financial issues facing you. In this instance, selling might be a no-brainer.
However, suppose you have $5,000 equity in your property. Is $5,000 enough to make a difference in the financial burdens you face? On the other hand, let’s say that you are basically debt free; is putting an extra $5k in your pocket going to matter to you all that much?
This leads to another question.
If You Sell, What Are You Going to Do with the Money?
If you are strapped for cash and have a nice chunk of equity, you probably know what you would do with the money if you were to sell. But what if there is no clear and compelling need for the money immediately? How do the, “I have substantial equity” vs. “I do not have substantial equity” scenarios play out then?
You aren’t strapped for cash and do not have substantial equity.
In this case, you need to ask yourself, “Why should I sell?” Selling isn’t going to put enough extra cash in your pocket to make it exciting. And think about this: the single most significant source of wealth creation in the world comes from real estate investing. (Look it up, it’s a fact.)
People from all walks of life aspire and strive to own income-producing real estate. Here you find yourself already controlling what so many others hope to control. Perhaps keeping and leasing this unit is the smart way for you to go.
You aren’t strapped for cash and you do have substantial equity.
Have you seriously thought through what you would do with your equity if you sold? The money has to go somewhere. You are not going to hide it under the mattress. You see, the thing about money is that it is pretty much useless unless and until you put it to productive use.
Lots of people fail to understand that the best use of money is making more money! Of course, everyone needs to maintain an emergency reserve fund, but beyond that, unused cash is basically a waste of money.
So, we are back to the original question, “If you sell, what are you going to do with the money?” You could put it into the roller-coaster casino called the stock-market (bias alert!). You could buy government bonds and make a percent or two on your money (bias alert!), or maybe you could invest in some income-producing real estate.
But wait a minute! Don’t you already own a piece of real estate that you could quickly turn into an income producing asset that would likely continue to increase in value over the long-term (equity build-up) while also providing a stream of regular monthly rent checks? Do you see my point?
And, don’t forget that there are many benefits to owning rental apartments, houses, and condominium units, the discussion of which is beyond the scope of this article. Things like:
- Tenants provide the cash for the mortgage payments – no out of pocket.
- Depreciation write-offs.
- Expensing such things as repairs and management fees.
- The ability to leverage equity through credit-lines and mortgages.
- The advantages of tax-deferment through IRS Section 1031 exchange rules.
Of course, I cannot possibly run through every scenario, but I hope that I have provided you with a roadmap guiding you through the general sell vs. rent decision-making process. I’d like to think that I’ve piqued your interest spurred you on to consider conducting further research into keeping your current property as both an income and equity growth vehicle (if that is what makes the best sense for you).
That said, please DO NOT allow this article to be the sole determinant of your decision. It is always a good idea to seek the advice of your own qualified professionals when making investment decisions. Pick up the phone and talk to someone who is expert on these matters.
Your Next Step
If you are the owner of a house, condominium, duplex, or small apartment complex anywhere within our service areas*, I’d be happy to take some time to talk to you. We can chat about the process of leasing and managing your property, what you can expect, the costs involved, and how Real Property Management of Sarasota & Manatee can help ensure you have a profitable and hassle-free landlord experience. Contact me here, or leave a message at 941-216-0005, and I will quickly get back to you.
*Our service areas include: Sarasota, Bradenton, Lakewood Ranch, Siesta Key, Palmetto, Osprey, Ellenton, Nokomis, Parrish, Venice, North Port, Englewood, and Port Charlotte, FL.
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