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Property Management

Should You Sell Or Rent Your Salem House? Property Management Tips

Mendell Gosnell - Tuesday, November 14, 2017

 

A common question among investors is: should I sell or rent my house? Whether you have a single family home, townhouse, condo, or apartment complex, one of the questions you might be asking is whether you should hold your property and rent it out, or sell. And, if you do sell, what will you do with the money? There are a few things to consider.

Should I Rent My House Out or Sell It?

As a property manager, asset manager, and investor myself, this is one of the questions I’m constantly asking. I can always be found running numbers, evaluating goals, and deciding whether I should continue holding a property or whether it’s the right time to sell. One of the factors to consider is whether you have maxed out the value of the property. You have to think about how the market is performing, and whether you can sell for a decent amount. Rotating the sales proceeds is also a good thing to consider, and whether you can do a 1031 exchange. The inventory right now is low, so it can be challenging to find something new if you sell what you currently have.

The Benefits of Buying and Holding

Generally, I agree with the Warren Buffett mentality. I believe in buying a good property and holding it for the long term. On the investment side, you want to understand your goals. At the beginning of your investment career, your goals might be more aggressive. Or, maybe you’re risk-averse, and holding is the right answer for you.

Risk on Equity

While determining what to do, many investors look at return on equity, or ROE. This is where you calculate how much equity you have in the home and what that will mean for profits if you sell. Compare that to how much you’re making on it as a rental. If that number is low, like three percent, your money isn’t working too hard, and it might be best to sell. Look at the market and the available inventory.

Taxes

You have to take taxes into account. If you sell, you may want to utilize the 1031 exchange or cash out. Deferring and avoiding taxes is advantageous, so you can consider passing your property onto heirs. Check with your accountant and your attorney. An estate planner can also help. In general, real estate has a lot of flexibility, and there are options for generating income and creating long term wealth.

If you are thinking about your primary residence, you can’t do a 1031 exchange with that. But you can take advantage of a better tax provision, which is the primary residence exclusion. Check with your accountant and see if you can qualify. If you’ve lived there for two or more out of the last five years, you can sell and not pay too many taxes. There are some rules that go with that and legislation is always changing, so pay attention to the updates to the laws.

Return on Investment

The return on your investment is another common metric to evaluate whether to sell or rent. Take a look at how much you’re putting into the property and how much you are cash flowing. Seven percent is not a bad investment, and cash flow at that level probably makes the property worth holding onto.

Decide where you are in your investment career. What you do will depend on your risk tolerance, goals, and the market. One of the main goals for me with real estate is developing long-term passive income. That’s the goal: to generate wealth and cash flow. Holding onto a property for the long term is a great way to go.

If you need help deciding whether to sell or rent, or you have any questions about property management in Salem, OR, please contact us at Centurion Real Estate Management.

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