Should I sell my home or should I rent it out?
Welcome back to my series on home seller tips. A question I get a lot is, should I sell my home or should I rent it out? Keep in mind, a good home isn't necessarily the best rental, and there are definitely things you should consider, such as how much equity you have on the home and what's your return on investment. Not only that but what else could you do with the existing equity you would have if you were to sell? Let's first assume you have little or no equity in your home, which means if you were to sell it, your net proceeds would be at break-even. Now, your initial thought may be, well, I'll just rent it out and let the rent pay for my mortgage and the home will appreciate over time. Now, that is very true, but keep in mind, even though homes tend to appreciate over the long run, real estate is cyclical, so in the short run, your home value may go up or go down, and you need to make sure that you're in a position to hold onto that rental even in a downturn, which could also possibly mean a softening of the rental market.
Now, let's assume you've owned your rental for quite a while and now you have tons of equity in that home. That's great, but one thing to start asking yourself is what is your return on equity? What is the cash that you're actually receiving from the money that's tied up in your rental? Let me walk you through an example. So let's say you have $300,000 equity in your rental and you're receiving a hundred dollars a month in cash. That's $1,200 a year. Now, don't forget, the tenant is paying for your monthly mortgage as well, but the $1,200 a year is considered your return on equity on that $300,000. Now, a question you can ask yourself now is, can I take that $300,000 and potentially invest it in another opportunity that will give me a greater return on equity? For example, why not buy a duplex with that money?
You will have a nice down payment, and now you're going to collect two times the rent. Another thing to consider when deciding if you want to rent out your house is that not all homes are the perfect rental homes. For example, if you own a six-bedroom house, just think about it, how many people can actually afford to rent out a six-bedroom house, and those people that can afford it most likely have a pretty darn good income that they can actually go ahead and put down a down payment for their own house. I own several rentals and I'm not opposed to them. I think it's a great way to create wealth and passive income. But here's the thing, when I hear someone just throwing it out there that they wanna rent out their house because it's easy money, trust me, it is not. There is no such thing as free money.
It involves a lot of work, a lot of headaches, and sometimes a lot of money, and even if you do decide to give out your property to a property manager, there's no guarantee that that manager is gonna do a great job. What if your house has a pool? Do you really want that liability in renting out that house? Or what if you just spent $200,000 on upgrades? Do you really think your tenant is gonna take care of that house as well as you will? Hey, I'm just saying they might, but who knows? All I'm saying is if you are considering it, do your research and ask a lot of questions and just see what other options you do have. I hope this was helpful. Take care.