When we got the second home to “rent it out” to my sister, we used all of our short-term investment money for the downpayment. Our goal was to invest it this way to turn in returns faster than traditional stock yields allowed. By pure serendipity, the housing market started to soar and two and a half years in selling the property will yield a return on our investment of 150%. We are getting our original investment and 50% extra cash! That is 5x better than the average mutual fund return of approximately 5-7%, and way better than the market average of 10%. This is the main reason why selling appeals to us rather than renting.
Financial analysts will most likely advice you to keep the property and rent it out because you can easily quintuple the original investment cost long-term. If you wait 30 years or less, depending on the type of mortgage you selected to suit your needs and budget, renting equates to having someone else pay for your liability. As long as your credit can hold the charge and you have money to cover incidentals, and vacancy periods, the strategy will work for you. Waiting becomes part of the game; buy low sell high is the key to maximizing profit. It never hurts to rent it out for enough money to cover the payments, taxes, incidentals and other fees that accumulate over time. In some markets you may even make enough extra cash to subsidize your primary dwelling charges too.
Renting is a relatively low risk endeavor when approached correctly. Check local laws and tax breaks to make sure this option is good for you. If you don’t need to sell the home you own and are occupying to buy the next one, wait until the markets become favorable for buyers and take the plunge. Many fall prey to the buy low, sell high concept and forget that if they are selling during peaks, they will pay a premium to buy into that next property. Save cash and manage your finances responsibly to get a better loan APR and interest rate due to good credit. In times of need, resort to renting out your home rather than selling it because long-term, you will recoup the costs of being displaced more easily than those associated with defaulting or bankruptcy proceedings. Whenever possible refinance and talk to your lender before walking away from your investment.
Hopefully by the time we go to market the rates are good enough for buyers to splurge and for us as sellers to capitalize. In our case we didn’t technically hold and flip the property but it is not a bad idea to start with a fixer upper and start trading up. Review how much buying power you have before venturing out into the homeownership and property investments world. Not every opportunity and model will work out for you based on the geographic area and buyers’ acquisition power, with local realtor customs costing you more or less when it comes to closing.
Happy house hunting, selling or renting peeps! We’ll let you know how it goes…