The real estate business is unique in the fact that there are many ways to accomplish the same goal. If you have ten investors in a room and you ask them the best way to tackle a project, you may get five answers on one side and five on the other. The bottom line is that you can dictate what is best for you, given the market you are operating in. That said, one of the more controversial topics that confronts investors is whether or not it is best to to continue renting a property or cash out and sell it. Both are options, but is one better than the other? Much depends on you and your goals. However, before you make any decisions, you need to have as much information as possible.
The first thing you need to evaluate is what you want out of the property. Not every investor is cut out to be a landlord. Even if you have a property manager taking care of the house, there are still numerous items that an owner needs to have their hands in. The property can be viewed as a long term addition to a portfolio or renting may have been a stop gap to bide time to sell. Whatever it is, what you want out of the property will dictate what your options are and what you will end up doing.
It is important not to get blinded by what the market is currently doing. If you bought with the intent of paying the property off until it is paid in full, an uptick in the market may be very tempting. As an investor, you need to be flexible, but you also need to know that the market is constantly changing. If you go back and forth without sticking to any real plan, you may end up regretting the decisions you make years down the road. If you view the property as one that will be a staple in your portfolio for many years, you need to keep this in mind – regardless of where your market currently is.
Being a landlord can be extremely frustrating at times, but you should accept that this is part of the business. Never let one bad tenant or one bad stretch of repairs influence your decision to sell. If you are considering selling, you need to calculate your real bottom line. Between closing costs, commissions, taxes and capital gains, what you think you are netting may be far from the bottom line. You should also look at what a realistic sales price is before you put the home on the market. Every owner thinks their home is worth more than it is, but if you are selling you should consult with a realtor before you take the step. When the home is on the market and offers come in, it can be tempting to take a bad offer just to get out and move on. It is important to factor in the worst case with selling and what your bottom line is before you list your home.
Many new landlords will fall into the trap of thinking they are making more money than they really are. If you aren’t looking at all the expenses, or haven’t had to put any money for repairs yet, you may have an unrealistic and inaccurate view of the property. If you know all the numbers, you may think harder about selling than holding onto to a bad asset. If you find yourself spending a majority of your time dealing with tenant and property issues, you need to evaluate if it is really worth it. If on closer inspection you are just getting by, you should consider selling and moving on.
Nobody can predict the future in real estate, but there are trends that can give you a good idea of where the market is headed. There is nothing wrong with taking a small profit and moving on. However, if the market is trending upwards, it may be wise to wait until selling. Most markets have seen a modest increase in sales price and volume over the past few years, but there has not been the surge that many experts expected. If by holding onto the property for another year or two means a 20-30% increase in profits, it has to be considered. On the flip side, there is nothing saying that the market can’t remain stagnant or even drop a little during that time. If you are satisfied with what you can walk away with today, you should do so.
Before you think about selling, you need to look at all of the numbers on the property and in your market. Five or ten years down the road may seem like an eternity, but it will be here before you know it. Some of the greatest regrets that investors have is selling to get a quick buck rather than waiting the market out. You need to speak with your realtor to know where you stand. Renting property is a great way to accumulate long term wealth, but it can also be time consuming and distract you from your short term goals. If you feel it is time to sell and move on, do so without looking back.