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Sell Versus Rent Assessment Guide: Should You Rent Out or Sell Your House?

No property owner should have only partial information when they are considering such an important financial decision as whether or not to hold onto this property as an investment or to sell it off.

Like you, I once had to decide if I should become a real estate investor. It was not an easy decision because I understand that money and credit are at risk.

But, there is also the potential for handsome returns.

Give yourself a score from 1 to 5 for each question, 1 means you completely disagree with the statement/question and 5 means you totally agree. Note: We don’t save any of the responses to these questions. All your responses are strictly confidential.

Checkbox Evaluation

1

Totally Disagree

2

Disagree

3

Okay

4

Agree

5

Totally Agree

1. If you had to make a wild guess, do you think your house would rent for more than $1,400 per month?

2. The mortgage payment is probably going to be more than the monthly rent.

3. I’m going to lose sleep worrying about tenants tearing up my house.

4. A $500 repair bill for this property is going to cause major problems with my finances.

5. If I don’t have any rent coming from the property for a month or two, I may not be able to make the house payment.

6. I want to get whatever money I can out of this property ASAP. I’m not interested in holding onto it for a greater return over time.

7. Diversifying my investments into real estate is not a priority for me.

submit

Greater than 27

You should consider selling the property.

15 to 27

You could consider either selling the property or listing it for rent.

less than 15

You should consider renting the property.

What Your Sell Versus Rent Assessment Score Means

The higher the score, the more likely you are better off selling the property rather than renting it out. But let me break this down a bit more so that you can get a feel for the considerations.

My perspective is that real estate in Oklahoma City is a very good investment. The average person can invest in mutual funds, stocks, etc, but Oklahoma City real estate has some unique advantages that just aren’t available with those other types of investments. Here are those advantages:

  • You can leverage real estate, which means a mortgage company will lend you money to buy the property rather than you having to pay for the entire investment with cash.
  • In general, housing values increase in price. The average appreciation in the Oklahoma City area has been about 4.5% since 2009.
  • Equity builds in a property as the mortgage pays down.

There is also a workbook you can download from this website that has additional information about how real estate investing works.

But not everyone is cut out to be a real estate investor. And, not every property is cut out to be a good rental property.

Rental Price Assessment

In general, there is the greatest number of people looking for rental properties in the OKC metro area in the $650 to $1,300 per month range. Once you start going beyond $1,400 per month,the number of people looking for those properties starts to shrink. There is still a market, but it just may take some additional time to lease.

When people ask how long it should take to find a renter, I like to tell them about 30 days as long as the property is ready to rent (it’s clean and items are fixed), the rental price is appropriate (not set too high), and it’s not a slow time, like between Thanksgiving and Christmas.

Allow an extra 30 days if you have a higher-priced rental.

If you aren’t sure how much your house will lease for, we can help you with rental comps. Or, go to a site like Zillow. to find what similar houses close to yours are leasing for.

Mortgage Payment versus Rental Payment

It’s a burden if your house has a negative cash flow, meaning that you have to pay money out of pocket in order to pay for all its bills. Before you make a decision about rental property investment, you should run a budget just to make sure it makes sense.

That means compare the rent you expect to get from the property versus all the expenses. Expenses include property tax, insurance, maintenance, vacancy, and property management fees.

If you are buying a property and wish to do this assessment, there is a free tool on the website that can assist you in analyzing the cash flow There is also a good article on this website about how to use that rental cash flow calculator

Will the Tenant Tear Up the Property?

There also may be an anxiety factor that goes along with owning rental property. We place pride in our homes. We take care of them. It’s very disappointing when a tenant doesn’t treat your home with the same respect that you do.

You need to decide if you can set aside the feelings you associate with your house enough, knowing that the tenant will definitely not treat your house with the same level of respect that you did when you owned the property.

Your Financial Position

The biggest financial risks are losing income from a tenant moving out (vacancy), and repairing damage to the property caused by the tenant tearing up the property.

Those costs usually hit at the same time, so it can mess up your cash flow. It’s always best to build up a cash reserve against those types of losses so when they hit you aren’t squeezed.

So that’s why the assessment asks if a $500 repair is going to cause great financial stress. What if an appliance goes out and needs to be replaced? You are likely to be looking at that type of expense. Or suppose the central heat and air system need to be replaced. That could be a $5,000 expense. You can expect carpet replacement and complete repaints every 5 years or so.

How Committed an Investor Are You?

I think you have to see the value in real estate as an investment. I’ve been very successful to this point with my real estate investing. I didn’t start out with a whole bunch of money. I slowly added properties, one at a time.

Over time, I could see how much the values of properties I’d purchased increased. I could see the mortgages pay down.

Some people lease out properties because they don’t have enough equity in their property to sell without coming out of pocket. I get that. They will hold the property long enough to build enough equity to sell the property without coming out of pocket. That works. If that’s what you want to do, we can help you make that happen.

But how about committing to hold onto that property for at least 5 years? You will be surprised at what can happen over time.

How Many Repairs are needed?

Factor in what you will have to do to make the house ready to rent. If you want some tips on doing that, here is a good article on making your property ready to rent.

Do You Have Time to Manage Your Own Property?

Property management costs money. If you’d like to find out what we would charge to manage your property, contact us.

The short answer is, you don’t have the time. It isn’t worth the time to have to become an expert at advertising a rental, showing it, screening applications, writing up the right lease, finding repair people, collecting the rent, and on and on.

FAQ: Know More About Sell Verus Rent Assessment

How long should it take to find a tenant?

It usually takes OKC Home Realty 30 days to find a tenant as long as the property is ready to rent (it’s clean and items are fixed), the rental price is appropriate (not set too high), and it’s not a slow time, like between Thanksgiving and Christmas.
You should allow an extra 30 days if you have a higher-priced rental (more than $1,400 per month) or it is a slow time of the year.

How can you find out what a property will lease for?

If you aren’t sure how much your house will lease for, OKC Home Realty can help you with rental comps. Or, go to a site like Zillow. to find what similar houses in the same neighborhood are leasing for.

How can you figure out if the property will have a positive cash flow?

Negative cash flow means that you have to pay money out of pocket in order to pay for all its bills. Before you make a decision about rental property investment, you should run a budget just to make sure it makes sense.
That means compare the rent you expect to get from the property versus all the expenses. Expenses include property tax, insurance, maintenance, vacancy, and property management fees.
If you are buying a property and wish to do this assessment, there is a free tool on the website that can assist you in analyzing the cash flow There is also a good article on this website about how to use that rental cash flow calculator

What if the tenant tears up your property?

You need to decide if you can set aside the feelings you associate with your house enough, knowing that the tenant will definitely not treat your house with the same level of respect that you did when you owned the property.
But if the tenant does tear up the property, it will need to be cleaned up.
You may have to pay to repaint it and possibly replace the carpet. So, if you are going to rent out your property, set aside some money to pay for costs if it happens.

How much money should you set aside for unexpected expenses associated with your rental property?

The biggest financial risks are losing income from a tenant moving out (vacancy), and repairing damage to the property caused by the tenant tearing up the property.
Those costs usually hit at the same time, so it can mess up your cash flow. It’s always best to build up a cash reserve against those types of losses so when they hit you aren’t squeezed.
What if an appliance goes out and needs to be replaced? You are likely to be looking at that type of expense. Or suppose the central heat and air system need to be replaced. That could be a $5,000 expense.
You can expect carpet replacement and complete repaints every 5 years or so.
So strive to set aside three monthly payments for your rental property.

If you don’t have enough equity in your house to sell it without a loss, can you rent it out?

Some people lease out properties because they don’t have enough equity in their property to sell without coming out of pocket. They will hold the property long enough to build enough equity to sell the property without coming out of pocket. That works. If that’s what you want to do, we can help you make that happen.
But you may not get a positive cash flow. See the question about cash flow above to determine if that will be a problem.

How long should you hold onto your rental property?

When you own rental properties, over time you will see how much the values of properties you’ve purchased increases. You will also see your mortgages pay down gradually.
It’s best to go in with the mindset of holding onto your property for at least 5 years. You will be surprised at what can happen over time.

How many improvements are needed to rent out your property?

If you want some tips on doing that, here is a good article on making your property ready to rent. You can also call us to discuss those items.

Do You Have Time to Manage Your Own Property?

Property management costs money. If you’d like to find out what we would charge to manage your property, contact us.
The short answer is, you don’t have the time. It isn’t worth the time to have to become an expert at advertising a rental, showing it, screening applications, writing up the right lease, finding repair people, collecting the rent, and on and on.

When should you sell a rental property?

1. If you have no way of effectively handling the property management, it’s better to sell the property.
2. If the property will have a negative cash flow, it’s better to sell it.
3. If you really need the cash from the sale.