Should I sell or rent out my house? This is a very common question we often get from homeowners that are trying to evaluate whether or not their home makes sense as a rental property / real estate investment. When considering whether it's best to sell or keep the property as a real estate investment, there are a few factors that should be considered prior to making your decision.
Motivation
What is the motivation behind keeping the property and turning it into a rental property? Is it because you love your home and don't want to see it gone? Is it to build passive cash flow? Do you want to hold on to it in case you want to move back in at a future date? These are personal questions that can only be answered by you. That being said, in my experience, the more emotionally attached to the property you are, the less likely it is to be a successful investment. Real estate investing is a business and should be treated as such.
Does your property make a good rental?
I know this is your home and you probably love it but compared to the general rental market in your area, would it make a good rental property? Is it in a great location? Close to public transit or an economic driver? Does it fit in with the size and level of finish with the typical rental property in your neighborhood? Is it really small or has a bad layout? We typically see that outliers do not make great rentals. For example, if the neighborhood your property is in is primarily families, a studio may not be a great rental. Or if you're in an upscale neighborhood or rapidly gentrifying neighborhood and your unit is very dated, it may not be a great fit. If your property is right in the sweet spot for your area, it’s a good sign that there should be rental demand, making it a good candidate for a rental property.
Repairs & Maintenance
Repairs and maintenance are one of the biggest expenses that can kill the profitability of a real estate investment. Is your property new construction? Recently rehabbed? Upgraded and really well maintained? If it's none of the above and things are breaking down frequently, this may not make for a great rental property. Repair costs can add up quickly and sink a rental property investment before you know it!
Potential Appreciation
Appreciation projections can sometimes seem like they're pulled out of thin air with the brightest and most promising future in mind. That being said, potential appreciation is certainly something to consider in your decision making process. You should zoom in and look at the property and market on a micro level and also zoom out to look at the broader market from a macro perspective. Here are a few questions to consider for both the micro and macro perspective:
Micro - Are the schools in the neighborhood getting better or worse? Is crime in the area getting better or worse? Are there new developments that are improving the immediate area? Are taxes going up or holding steady? Does the neighborhood/city have a well thought out master plan that they are actively trying to execute on?
Macro - Is the city/state/region growing below or above the national average? Are there major developments in the city/state/region that will improve the quality of life here? Are there improving economic drivers in the area (ie. Are the number of corporate headquarters shrinking or growing? Are there tax incentives to bring in new businesses? Etc.)
The Numbers
At the end of the day, when considering if you should sell or rent out your home, the numbers have to make sense. Rental properties are real estate investments and a good investment, by definition, should provide a positive and healthy return. How that's measured and what's an acceptable return is a decision that you have to make. Many investors use a cash flow per door method (ie. $250 of cashflow per month per unit) and others use metrics like cash on cash return or cap rate (my personal favorite is cash-on-cash return as it allows you to create an apples-to-apples comparison against other investments such as stocks or cryptocurrency). If you’re running the numbers and getting low single digit returns (or even negatives), your home probably won’t make a great investment property. On the other hand, if your calculations are coming up with what you would consider a great return, renting out your house may be a wise decision. If you are looking for an easy way to run these calculations, check out our free Sell Vs Rent calculator here.
Deciding whether to sell or rent your home can be a big decision so I hope this article helps you analyze what the best choice is for you and your home. If you need help, have any questions, or are interested in learning from the best property management company in Chicago, don’t hesitate to reach out! You can contact us at Landmark Property Management via phone at 312-313-8553 or send us an email at office@landmarkrgc.com. As always, I hope we provided you with some valuable nuggets and I appreciate you stopping by!
