To sell or rent – that is the question. However, the answer is not a simple one. Owning rental properties can be a lucrative long-term investment and provide a steady source of monthly income. That said, many areas across the country are experiencing a strong sellers’ market, leaving owners wondering if they should cash in while they can. Are you an “accidental landlord” or an owner currently weighing your options? Check out ways to decide between selling vs renting along with current market conditions below.
What Makes a Good Rental Property?
When it comes to selling vs renting, owners must consider many financial, lifestyle, and market conditions before making their final choice. But how do you know what makes a good rental property? Check out some of the positive factors below that define a profitable rental investment.
- You Have What the Market Demands
- Rental Rates are Favorable
- The Area is Up-and-Coming
- Positive Cash Flow
- You Already Have Great Tenants
You Have What the Market Demands
Depending on where your property is located, the pool of renters may desire different amenities. This is important when it comes to overall return on investment. After all, a property in a desirable area can charge a competitive rate and may experience less vacancy. For instance, in many suburban areas, a 2- or 3-bedroom single-family home in a great school district will experience better ROI than a luxury condo in the same area. So, if you have what renters want and need, it may be beneficial as a long-term investment to hang on to your rental property.
Rental Rates are Favorable
Understanding the local market and rental competition is essential to determining whether to sell or rent. Ideally, owners should set a goal of a rental rate that is at least 1% of the total investment. For example, if the property investment costs $150,000, then the market should support a rate of $1,500 per month. That said, some areas may garner even higher rates. So, if your property is achieving high rates and the market continues to grow, keeping a rental may be the best investment choice.
The Area is Up-and-Coming
When it comes to selling vs renting, location plays a critical role. One of the best rental investment strategies is to buy in an up-and-coming area, make strategic improvements, and turn a profit. Furthermore, as the area continues to evolve and improve, rental rates are sure to rise as demand increases.
Positive Cash Flow
Making money is the goal of any investment. Selling vs renting often comes down to what looks better in the numbers. However, if your property is producing positive cash flow, it may make sense to continue renting it out. Positive cash flow is determined by the amount of money left after all expenses are paid. That said, the ideal rental investment can produce enough cash flow to survive month to month with no injection of cash from the owner.
You Already Have Great Tenants
Qualified, respectful, and paying tenants are worth their weight in gold to owners. So, if you have them, do not let them get away. Keeping great tenants in your rental is a good way to ensure continued cash flow. However, no matter how hard you try, tenants will inevitably come and go. Therefore, a sign of profitable investment is the ability to secure a new tenant quickly with minimal vacancy. If you can do that, it is worth keeping the rental as part of your investment portfolio.
Reasons to Sell Your Rental Property
There comes a time when some investments have run their course, and action is needed. Eventually, it may be more financially viable to sell the property rather than continue renting it out. That said, there are a few reasons when selling may be a more attractive option for investors or landlords. Check out these examples below –
- It is a Seller’s Market – The name alone suggests it is a good time for sellers in today’s real estate market. As demand in most areas outpaces supply, sellers are the ones reaping the benefits. Increased demand means sellers are likely to encounter multiple offers, faster selling times, and higher prices than a traditional buyer’s market.
- Property Value is Increasing – Simply put, if your property is worth substantially more now than when originally purchased, it might be attractive to sell.
- Profits are Dwindling – Profit is the measure of a good investment. Therefore, if your rental profit is falling or nonexistent, getting out before the situation gets worse is the best move. After all, an area where the rental market is slipping does not mean someone is not looking to buy.
- Exorbitant Maintenance – Every property needs regular maintenance, and owners must also plan for possible emergencies. That said, if the maintenance costs have become too high or too frequent to justify keeping the rental, selling is a good option.
- Regulations are Stifling – As both the long-term and short-term rental industry grows, regulations continue to increase. That said, some areas make it hard for investment owners to conduct business through red tape, added inspections, higher compliance fees, and restricted use neighborhoods. Furthermore, the wake of COVID-19 established even more hoops for landlords to jump through.
Additional Reasons to Consider Selling vs Renting
- Financial or Life Changes – Sometimes, life forces your hand in some decisions. Perhaps you have experienced a job loss or unexpected financial hardship that hinders your ability to care for the investment property. Maybe you are planning to retire or need cash to cover college tuition. Regardless, if owning rentals no longer suits your lifestyle or financial goals, sell and cash out while you can.
- The Area is Declining – Are prices falling? Is the crime rate increasing? If the area is going downhill, this will hinder future profitability, and selling while you can is the best option.
- Current Tenants Do Not Pay – Bad renters, increased damage, and eviction proceedings are enough to worry even the most seasoned investor. Therefore, if your property cannot seem to hold a qualified tenant that pays on time, selling may be the most stress-free option to recouping your investment.
- You No Longer Want to Be a Landlord – Not everyone sets out to be a landlord. In fact, some “accidental landlords” have inherited a property or just found themselves unable to sell a second home after relocation. However, sometimes for whatever reason, you no longer want to be a landlord. So, whether landlord duties consume too much of your time or you are tired of dealing with tenant issues, selling is a way out.
Selling vs Renting in Today’s Market
Increased buyer demand for those trying to find their dream home before rates increase has led to a seller’s market across much of the US. This is good news for investors looking to sell some of their portfolios. However, the real estate market, just like the rental market, experiences ebb and flow.
That said, some experts believe that increasing mortgage rates, resuming new construction projects, and inventory catching up will start to see the market level out towards 2024. So, now might be the best time to sell to take advantage of the booming seller’s market.
Unsure where you stand? Consider running your numbers through NARPM’s Selling vs Renting calculator. This estimating tool can help owners see where they could get the most profit when it comes to selling vs renting. If you want to hang on to your properties but the day-to-day is too much to handle – consider professional property management.
The Benefits of Professional Management
When the daily duties of being a landlord have you considering selling vs renting, the answer may be to continue renting but with some added support. Rental properties can be a lucrative long-term investment, but only if managed effectively to mitigate costs and achieve the highest profit potential. Check out these reasons to hire a property management company:
- High-quality and Thoroughly Screened Tenants – Tenant screening is the most important step in the rental process. Therefore, the best property management firms have tried and true methods for efficient screening to find the best tenant for your rental.
- Less Chance for Legal Drama – Knowledge of local, state, and federal laws is vital as a landlord. However, it is a lot to keep up with. Local property managers have the industry know-how to guide owners through legal compliance to avoid potential vulnerabilities.
- Shorter Vacancy Time – Targeted marketing techniques used by the experts will shorten vacancy time by getting your listing where tenants will see it most. Their professional agents tour the property and use their experience to turn “just-looking” into “where can I apply.”
- Efficient Rent Collection – Technology is critical to today’s renter looking for convenience and ease of use. Professional firms can offer apps and online services for rent collection and even maintenance to streamline the entire process.
- Lower Maintenance Costs – No tenant is going to be happy with slow responses to maintenance needs. Property managers can use technology to receive and track the progress of repair requests with ease. Furthermore, the vendor relationships that established firms can offer help owners save money and keep tenants happy by addressing issues promptly.
- Peace of Mind – By hiring the right professional, owners can sit back and relax, knowing their rental is in the best possible hands to maximize their profit potential.
Meeting Needs and Exceeding Expectations
At Bay Property Management Group, we provide full-service rental management for a low monthly fee. Our team works to efficiently market, navigate compliance requirements, and manage rentals while achieving your financial goals. Furthermore, the in-house accounting team ensures rent collection and distribution happen seamlessly each month while providing comprehensive financial reports at your fingertips. If you are on the fence about selling vs renting, give us a call today to find out what local property management services can do for you.