Life has pulled you in a new direction and now you have a vacant home with a mortgage on your hands. Real estate is one of the soundest investments you can make; so, you may be wondering if you should sell the home or rent it out in hopes of garnering some extra money for your future retirement. The answer to your pondering depends on the state of the local real estate market and your current financial status. Here are some things to consider:
Are Home Values in the Neighborhood Going Down?
Look at how other homes in the neighborhood are selling. If their sale prices are decreasing and homes are losing value, you should seriously consider selling. It could be many years before these values increase (if they do), so the longer you wait, the more money you risk losing. It’s better to sell now when you can get the most money for the property.
Note: If you’re in Southeastern North Carolina, you can keep an eye on neighborhood sales with our home valuation tool.
Do You Have Enough Money to Cover the Mortgage Payments for a Few Months?
Finding a renter can take time, not just now but also when they decide to move out. You may need to cover the mortgage payments while the home sits vacant. If you don’t have the money or think it may push your limits and create too much financial stress, it’s best to sell the home. Just keep in mind that you’ll have to price the home to sell quickly or you’ll be making more mortgage payments than you can afford.
Answer: Depends on your savings.
Do You Have a Financial Reserve for Repairs?
As a landlord, you’ll be required to maintain the property and keep it in livable conditions. That means paying a heating and air company every time the air conditioning goes out, hiring a plumber to fix broken toilets, and buying new appliances when one breaks. As we all know, this usually happens unexpectedly, so you need to have money set aside to resolve these issues. If not, the tenant could sue you.
Answer: Depends on your savings.
Are You Prepared to Handle an Eviction and Property Damage?
If you’re unlucky enough to get a bad tenant who trashes the property and/or is always late on payments (or doesn’t make payments at all), you can’t just kick them out of the home. There are protocols you must legally follow in order to evict them from the property, including filing a request with the small claims court, which also costs money. This can be a long process, so you must be emotionally and mentally ready to do that when you need to. You must also be ready to deal with repairing property damage after the courts resolve the issue, because the property is rarely left unscathed. If the whole situation sounds too overwhelming, you may not be ready to be a landlord.
Answer: Depends on your mental stamina.
Do You Have a Mortgage Payment Significantly Lower Than the Forecast Rent?
If your answer is yes, the neighborhood values are good, and you have some savings set aside to help cover a mortgage payment while you find a tenant, go ahead and rent the home, because chances are good that the extra money you make will be able to pay for the home’s upkeep while equity accrues. It’s an ideal rental situation.
Are You Good with Budgets?
Owning investment properties is a business. You need to know when to put money aside and when to spend it. If you overspend, you may not have the money to maintain the home, pay taxes, etc. So, if you often find yourself in the hole and not knowing why, chances are that you aren’t great at budgeting. You either need to hire someone to help you or pass on being a landlord. However, if you’re great with money, you may be perfect for the job.
Are You Concerned About Squatters and Criminals?
Sometimes people are relocated short-term for their jobs or want to keep their properties as 2nd homes because they have family in the area. If that’s the case for you, but you’re worried about the home sitting vacant, renting it out as a vacation property while you’re not living in it could be an option. Vacant homes are often targeted by criminals and squatters who notice that the property has no activity. Renting it out would keep up the appearance of habitation and deter the home from falling prey to these lawbreakers.
With the right property, finances, and frame-of-mind, renting out your home can be a good way to gain wealth. However, in any other situation, you could end up spending more than you make. So, consider everything very carefully.
If you’re located in Southeastern North Carolina and need some help determining the market value of your home, give us a call at (910) 202-2546. We’re happy to put together a Comparative Market Analysis so you can decide if neighborhood values are where they need to be for you to rent out your home and gain equity. We can also put you in touch with a property management company, if you want a more hands-off approach to leasing your home.
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