Property Management Blog

It is the dream of almost every individual or household to own a home. You work hard to make this possible, paying the monthly mortgages dutifully. And now, your home is currently and fully in your name. 

Circumstances have it that you need to move to a new home. The question arises: What are you going to do with your current home? Will you rent it out or sell it?

In all honesty, this is not an easy decision to make. From an emotional perspective, you have invested so many memories. But emotions aside, the decision must also make sense from a financial standpoint. 

If you find yourself in such a dilemma, you are not the only one. The team from SGI Property Management Dallas has advised several clients and guided them on the best course of action. Keep reading to find out more on the same. 

The Source of This Dilemma

How do property owners find themselves in this scenario? From our experience, these are the typical factors:

• You have been forced to change job locations

• The need for some passive income to build your portfolio

• Lifestyle decisions

• Market trends e.g. zoning, landlord-market, or seller’s market

These are just some of the scenarios that could create such a dilemma for a property owner. For a property owner who has some experience in rental property management, the path is even more blurry as they have tasted the fruits of property leasing.

But before you make the final decision on the matter, you should have a look at some of the following key issues:

Financial Perspective

If you haven’t finished paying off your mortgage, you would want to be in a position where the rental income covers the mortgage payments. Take into consideration the following example below and its implications:

If your is valued at $125,000 and you pay a monthly mortgage repayment of $625, your insurance and property taxes could total $200 per month. Renting your house at $1250 every month means you have a net cash flow of $425.

From a beginner’s standpoint, this looks like a viable option that you should consider. But there are other rental property management concerns that you should take into account e.g. management costs, repairs, vacancies, and varying operating expenses. 

Your positive cash flow must also consider these additional expenses to make the leasing venture viable.

Owning multiple properties comes with its own set of financial challenges. You will be required to foot increased costs in terms of the mortgage and maintenance expenses. 

On the flip side, you will enjoy the benefits of tax deductions. You should be aware that rental expenses, taxes, depreciation, and mortgage interests are all tax deductible.

Costs of Renting or Selling

You will need to decide from an informed standpoint, with considerable data on both options. Let’s assess the cost implications of choosing either.

Should you choose to rent your home, you should expect to meet the following costs: property management fees, insurance, taxes, marketing, tenant turnover, HOA fees, and maintenance. You might also have to pay the realtor’s commission.

Selling a home comes with its own set of costs. These include repairs, closing costs, commission, staging, and repairs/ renovations. From our experience, these costs amount to 8-10% of the property’s sale price.

Local Housing Conditions

While it is a unique product, the real estate market follows the dynamics of any other product. They must meet and comply with the rules of supply and demand. The decision on whether to rent or sell must fall within the current and future housing market predictions.

Have a look at the rental property demand for the property type in your portfolio. While analyzing renter demand, also consider new developments, job growth & employment, the stability of the economy, and rental dynamics. 

Also, read housing journals and market updates to understand vacancy rates, leasing rates, turnover costs, and other key rental figures.

A critical consideration on whether you want to sell or buy depends on whether we exist in a buyer’s or seller’s market. In a seller’s market, the demand for properties is more than the available supply. 

Sellers are bound to enjoy a higher profit should they decide to sell at such a time. 

On the contrary, we can have a buyer’s market where the demand is not as strong. It would be ideal for a seller to lease their property at such a time and wait for better times ahead.

Lastly, you should assess market conditions for the possibility of a recession. A recession is evidenced and signaled by economic slowdowns, high interest rates, high unemployment numbers, inflation, and high energy costs.

Type of Leasing Terms

Should the leasing stars align and you decide to rent out your property, you will need to decide on whether to offer long-term or short-term leasing terms. Each is a viable option to consider and comes with its pros and cons.

Long-term rentals are more stable, more predictable, and have less turnover. Regardless of location, many landlords choose to go with this option. Its reliability and consistency of income are its best advantages

On the flip side, we have short-term rentals. This option is more common in tourist-like and business-oriented areas. 

They offer landlords higher rental income and flexibility. While you get a higher rental income, it will be subjected to some inconsistency in occupancy and will need to keep the premises in tip-top condition.

In Conclusion

The decision to sell or rent a premises has baffled many property owners in the past. Property owners often find themselves out of their depth; analyzing housing demands, market trends, and other technical information.

Should this summarize your current situation, it would be prudent to discuss your situation with a reliable and expert property professional. SGI Property Management Dallas has been advising potential and current property owners in Phoenix for several years.

Do you want a quote for our solutions and services? Get in touch with us today.