Selling or renting is the age-old question for property owners, and there is no right or wrong answer. Let’s look at what the market is doing now and then discuss factors to consider to make the best choice for your situation.
The Market Now
The Central Texas housing market continues to be strong for many reasons, including our high quality of life, relatively low cost of living, and even the coronavirus pandemic.
COVID-19 has altered the way we search for homes, show homes, and buy and sell homes. It has also kept some local home sellers out of the market–those who don’t “have to” move–likely because they’re waiting for the effects of the pandemic to dwindle. That means that local demand for housing outweighs supply, so homes are selling for a higher price. This process is called a seller’s market. But, the real estate market is dynamic, and this could change at any time.
Additionally, mortgage interest rates remain at historic lows, motivating buyers to make a purchase now.
The local and national economies impact the housing market as well, so you’ll need to assess items that can increase or decrease city growth. People could be relocating for jobs, which can cause job losses and increases. Are businesses moving into the area? Are houses being fixed or abandoned? Each aspect will help you get a better understanding of where the market and economy are going.
Lastly, rent prices have increased over the years, with an increase in Millennials and Baby Boomers demanding affordable rental housing. But, this is a trend that could change now due to the economy.
What to Consider
Do you want to be a landlord?
Managing a property is a time consuming and challenging job. Consider if you have a team to help you, like a handyman or real estate agent, or do you need to hire them? Ask yourself if you have the time and effort to screen tenants or if you’re willing to hire a third party to do so.
It’s essential to factor in where you’ll be living. If you’re out of state, you’ll need a property manager. If you’re staying local, then you need to know what that requires. Not only will you need the time, effort, and cash to be a landlord, you’ll need to be knowledgeable in the local, state, and fair housing laws.
Read my owner’s resource for “5 Things You Should Know Before Becoming a Landlord”.
Are you buying another property while renting the other?
To get a second mortgage, lenders will consider rental income, usually up to 75%, to be counted as income sources. But, with low mortgage interest rates, this might be the time to refinance and pay an even lower mortgage payment.
Will home values increase in your area?
While it’s impossible to predict the market, it’s smart to follow it to see where your home’s value could be in a few years. Suppose you expect the market to work in your favor in a few years and increase the value. In that case, you might want to consider renting it now and selling later to take advantage of the appreciation. Conversely, if you think this is the best the market will do for your house, then sell now.
To calculate the potential return on your investment property, you’ll need to know your cash flow and equity. To read an example, read my investor resource “How to Calculate the Potential Return on Your Investment Property.”
A cost market analysis (CMA) will help you answer what your house is worth right now. It will also help you understand the current housing market and the price of other similar properties. Get a full CMS explanation here.
This is part one of a two-part series. In the next blog, I’ll share the specific costs of renting and selling. Check back in December for part 2!