When people are moving out of state, they often ask if they should hold onto their property and turn it into a rental home. I get asked this question about three or four times a year, and I thought it would be a good idea to explain why I usually encourage people to keep their home and turn it into a rental.
Rate of Return
The most important reason I recommend holding onto the property instead of selling it is that the home is probably one of the best investments you can ever make. Let’s look at a simple mathematical calculation. If you purchased your home for $500,000, you might have made a 20 percent down payment, or $100,000. That property will appreciate at an average rate of 5 percent or more. That gives you an annual rate of return that is $25,000. That 25 percent of return on your $100,000 investment is much better than we can ever expect from other investments. That’s why it’s worth holding on to this property.
Estimating Cash Flow
There are other factors you need to consider when you’re making this decision. Maybe your monthly mortgage payment is more than the rent expected. So that’s going to create a negative cash flow on your investment. Decide if you can afford that on a monthly basis for a couple of years. If you can, the property remains a great investment. A couple years down the road, the local rental prices will eventually catch up, and your cash flow will be on the positive side. When rent adds to the 25 percent rate of return, you are really earning.
Should I Sell or Rent my Home When I Relocate? Kirkland, WA Property Management AdviceOur recommendation is always to keep your home, turn it into a rental property and hire a great property manager to help you keep it maintained and occupied with excellent tenants. You’ll be glad you did.
If you have any questions about how to turn your home into a successful rental property, please contact us at Gregory Property Management.