We want to hear from you!
Your article comments are welcome!
I work around a number of people who have been relocated for their job (not necessarily willingly), so they have to worry about selling their homes where they came from which happens to be in a market that isn't doing too well right now. So I ask the question, why not rent your place out and at least wait out this down market? At best you may just discover a new way to invest! The first reaction I usually get is: Ick! I can't have someone I don't know living in *MY* house!
It is a strange concept to get used to (owning a house but not living in it and being detached from it on a day by day basis). You do have to surrender a certain degree of perceived control over the house. But do you really control a house you live in anyway? If you stop making payments on your house, what happens? So, really the bank owns your house. I think this concept more than any other stands between the majority of people and investing in real estate. People probably won't say it that way, perhaps because they haven't recognized it themselves. But I think if you really drill deep down, the control issue will be at the heart of most people's fears. We don't control *anything* anyway, it is all under God's control. Surrender the house to God, ask Him if that is what he wants you to do with the house then let go of needing to control everything.
Selling a house is difficult even in the best of markets. To sell the house, you have to pay about 10% in commissions and closing costs. In this down market add to that your reduction in price just to get it sold. At worst, you can't sell and the bank forecloses scarring your credit for years.
Let me ask you this: how many vacancies, repairs, tenant damage etc (which by the way, if tenant damage is extensive it's called vandalism and covered by insurance) will that 10% you would have paid to sell cover? That 10% may just get you a few years down the road, then you may find that you have a performing asset you want to keep because the cash flow keeps going up year after year (as rents go up).
Having said all of that, the risks with real estate are there and must be considered honestly and soberly. Surround yourself with professionals who know their jobs and are good at them and those risks get mitigated greatly. Most nightmare stories from real estate come from people who approach investing as a hobby. You can not... it must be treated like a business... Your role should not be to roll up your sleeves and get dirty, your role should be to manage your managers. Think like a CEO, spend the money when you need to spend it and when someone on your team under performs have the courage to fire them and find someone else.
In today's market, keeping the house you no longer live in and renting it out is a viable alternative to taking a bath on trying to sell it. Just be open-minded enough to give it a second thought.
Labels: asset, business, cashflow, CEO, control, detached, fears, foreclosure, price reduction, professionals, relocated, rental, risk mitigation, risks, vandalism
2 comments:
I totally agree. In most markets, houses have lost so much value that a lot of people's houses are worth less than the outstanding mortgage loan balance. So even if they were to sell, they would still owe a balance on the house. Now when you consider that they also have to either purchase another place to stay or put down some sort of deposit to rent a place, and it quickly becomes obvious that the current situation is not conducive to selling.
In reality it all comes down to how much you can get from an eventual renter and how much of your mortgage payment is going to be covered by their monthly rent.
Also, keep in mind that if you're being relocated, then you won't be there to act as the landlord. You'll likely have to hire a property management company and that's going to cost about 10% of the monthly rent collected.
So all in all, it's a balancing act, but the premise of renting at least to wait out the current real estate downturn is a very sound one.
Also, a novice investor should look into hiring a property manager as well (IMO) so they don't get in over their head. Just build that 10% cost into the equation... that 6% you would have paid to sell can cover lots of pm fees.
Post a Comment