When to Sell and When to Rent an Investment Property

Modest Money  |

When it comes to investment, most of the talk you hear on top finance blogs is centered on the stock market -- this is certainly true of the articles I’ve posted recently. But as time has gone on, I’ve become more interested in alternative forms of investment. Part of this has been because I became a homeowner.

Though some don’t consider home ownership to be proper investment since you have to perform maintenance upon it, there are obviously a whole class of real estate investors who make a lot of money buying, selling, renovating, and renting homes. But you don’t have to have a dozen properties to make some money on a house you own. In fact, all you need is one.

If you haven’t bought a house yet, but you’re thinking about it, there are different considerations to make in order to maximize that home’s investment potential at some point in the future. For one, you’ll want to look for a home that is undervalued, or that can be improved to the point where it’s worth much more than it cost you. You’ll also be able to bring in money with your home if it’s able to accommodate an investment suite. According to national and regional laws, these portions of the house typically have to have a separate entrance, plus bathroom and kitchen facilities. Some houses already have these built in, and others can be renovated to create rentable spaces for relatively little money.

But none of these tactics answers our initial question – when is it best to sell, and when is it best to rent out a house? The answer has a lot to do with your goals, and the specifics of the house in question. I’ll look at some considerations to make for both.

When to Rent Out Your Home

Renting out an investment suite or entire property can be a great way to bring in passive income. The process can be simplified even further by hiring a management company to take over the job of being a landlord – usually for 8-10% of your rental income. I would recommend this step for people who have enough financial stability to build into the world of passive income, or who are simply interested in increasing their net worth as a tenant pays off their mortgage.

However, this process can easily get complicated, as multiple properties can be difficult to manage on one’s own. Other complications can arise, like major repairs, which can put the landlord in a tough spot. To make sure these things work out, it’s important to make sure houses are in ship shape before renting them out, and this can be more of an investment than some people can handle – especially in the beginning.

When to Sell Your Home

Some people just like to flip houses, and that’s fine too. It can be a lot simpler, especially when you get good at it. House flippers typically buy distressed properties for cheap, improve them, and sell them for a profit. They have no interest in holding properties, and each sale lets them buy more or better properties, which can then be sold for even more money.

This strategy works better for career real estate investors, though investors can obviously make a career of the former solution. This kind of investor likes to constantly watch local markets, ready to spring at a deal when it appears. It’ll simply appeal to a different kind of mind and wallet.

In conclusion, this can be a good strategy for people who want to invest outside of the normal investment brokers. It’s not a foolproof or easy strategy. Those getting into it should do their research and make sure they’ll have tenants often enough, paying at a high enough rate, to provide a profit. Investors who simply buy and sell houses need to make sure that they’re fully prepared for their initial investment, as a mistake here can sink a whole career.

But even with these warnings, real estate investment can be a great way to increase your net worth and bring in some income. If you’re a new homeowner, look at the house you already have, and make a plan to make it work for you!

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer



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