enting vs. selling is a question that most investors face when they find that their property is not making maximum profits for them. They cannot decide whether they should continue renting it out or sell it to recover their capital investment.
There is always the possibility of making the wrong move to hurt you financially in the long run. Here are some tips to allow you to make the right call at the right moment to safeguard your investment.
Calculate your ROI
The best method of knowing whether you should keep a property or sell it is to calculate the return on investment. If you are getting a positive cash flow from the rent of a property after covering all your expenses, it is a good idea to hold on to it rather than thinking of profiting through a sale.
Of course, there are lots of expenses in maintaining a property that include not just mortgage payments but also its repair and maintenance, insurance, property taxes, utility bills and more. If monthly rent paid by your tenant is covering all these expenses and leaving some money in your pocket, you are better off continuing to rent the property. If not, then you should start thinking in terms of selling it.
Look at the current rental market conditions
If the rental market in your area is booming with monthly rents going up by a large amount every year, there is no use selling your property even if you can book a profit because of appreciation on its value. On the other hand, selling is an option if the rental market is depressed and rents are not increasing.
Look at the prices of nearby properties
If you purchased a property for $100,000 10 years ago and it will not fetch you more than $120,0000 in present time, there is no use trying to sell it now. This is because you will also spend nearly 10% of the selling price in the name of agent’s commission and other closing expenses. You are not making a profit by selling your house but incurring a loss as you will have to spend more on buying a similar property in the same area. In such a scenario, it is better to keep renting your property.
If you are facing long vacancy periods and net rental income is not high, you should think about selling your property to recover your investment. Remember, that each and every person and situation is unique. This is by no means a one-size-fits-all scenario.
