All
Members
Companies
Blog
Forums
Podcast
Webinars
    User Log in  /  Sign up
  • Forums
    Newest Posts Trending Discussions Followed Forums Real Estate News & Current Events General Landlording & Rental Properties Buying & Selling Real Estate Deal Analysis See All
  • Education

    Read

    BiggerPockets Blog BPInsights: Expert Analysis Coronavirus Content & Resources Guides Glossary Reviews Member Blogs

    Watch

    Webinars Video Library Financial Independence Blueprint Intro to Real Estate: Rentals

    Listen

    BiggerPockets Real Estate Podcast BiggerPockets Money Podcast BiggerPockets Business Podcast Real Estate Rookie Podcast Daily Podcast (Audio Blog)

    Topics

    Business Operations Finance Finding Deals Property Management Property Types Strategy
  • Network

    Recommended Vendors

    Real Estate Agents Mortgage Lenders Companies Hard Money Lenders Contractors Investment Companies

    Search

    Members Events Jobs
  • Tools

    Calculators

    Rental Property Fix and Flip BRRRR Rehab Estimator
    Wholesaling Mortgage Payment 70% Rule Airbnb

    Services

    BPInsights: Property Insights Tenant Screening Property Management Lease Agreement Packages

    New Feature

    BPInsights (beta)

    Quickly analyze a property address or ZIP Code to compare your rent in your neighborhood.

    Analyze a property
  • Find Deals
    Real Estate Listings Find Foreclosures External Link Ads, Jobs, and Other
  • Bookstore

    Real Estate Books

    Profit Like The Pros Bidding to Buy See all books

    Featured Book

    BiggerPockets Wealth Magazine book cover
    BiggerPockets Wealth Magazine

    Written by financial journalists and data scientists, get 60+ pages of newsworthy content, expert-driven advice, and data-backed research written in a clear way to help you navigate your tough investment decisions in an ever-changing financial climate! Subscribe today and get the Oct/Nov issue delivered to your door!

    Get the Magazine
  • Pricing
Log In Sign up
User
Quick search links
Podcast Hard Money Lenders Books Washington
BlogArrowLandlording & Rental PropertiesArrowShould I Keep my Property as Rental? 3 Questions You Should be Considering
Landlording & Rental Properties

Should I Keep my Property as Rental? 3 Questions You Should be Considering

Tracy Royce
Expertise: Real Estate Investing Basics, Personal Development, Flipping Houses, Real Estate Marketing, Real Estate News & Commentary, Business Management
60 Articles Written
Should I Rent my Property?

Many beginner or speculator-type real estate investors think that the crux of real estate investing is finding a distressed property, fixing it up, and selling for top profit. Keeping it as a rental ends up being a mistake, a backup plan, or a last resort for many people. But is keeping a property as a rental aways a bad thing?

Want more articles like this?

Create an account today to get BiggerPocket's best blog articles delivered to your inbox

Sign up for free

Regardless of how you come about owning a piece of property, there are a few things to keep in mind when considering whether you should keep it as a rental or not…

1. Is it in a Good Area?

There will be parts of your town that are known to be more desirable, are within a working class budget, and are close to important amenities like schools, grocery stores, and developed shopping centers.

Although there is the ongoing appeal and debate of buying cheap properties in war zones, the higher profit percentages may not be worth the management and maintenance headache for you. If you have no experience landlording, you typically want to avoid these areas all together.

If you've bought it at enough of a profit margin (or created forced equity through a rehab, additional square footage, etc), you may decide that the home could cash flow after you pay a monthly mortgage payment, taxes, insurance, and HOA (if there is one).

Check the rental rates in the area, how long it looks like it takes to rent a home of your mix (meaning, bedrooms and bathrooms). If you have the available credit, or a partner does, it looks like it would cash flow, it has equity, and it’s in a good area, you may have a winner.

Related: Newbies Take Note: Why You Shouldn’t Buy Houses for $30,000

2. Is it a Cash Cow?

If you've become an accidental landlord, cash flow may have never crossed your mind. But if your property has been sitting there and it looks like refinance may be the only option, the first thing to see is how much, potentially, you could rent it out every month at.

If its a marginal deal, (ie, less than $100 cash flow for every bedroom in the property), it may not make sense to you, and it would be time to move on to plan C. If you're OK with breaking even, it could be a potential hold, but dealing with tenants every month just to cover a bill could quickly become a drain. Many a speculator found themselves in this position when the market tanked, with most letting the properties go to foreclosure or short sale. Prevention is the best medicine nowadays; buy at steeper margins.

If you’ve been specifically targeting properties to buy as a keeper, it will be important to review what the current leases are for, how long they are for, and if they reflect market rent. If not, why? Did the old owner keep them down just to keep the place occupied? Did he refuse to do needed updating and keep tenants at reduced rates? Either of these gives you the opportunity to do the updating needed and “clean house,” literally and figuratively. Just pencil out how long it would take you to get your cash investment back (through raised rents), and if it fits your criteria.

Every once in awhile you'll find a deal that looked underwhelming at quick glance, but upon closer inspection could be reconfigured to be a gold mine. If it's in a good area, and can be a cash cow, it might just be a keeper.

Related: Tenant Turnover: The Biggest Killer of Your Rental Cash Flow

3.  Would it be a Good Lease Option?

Perhaps it’s not a cash cow, but it’s a desirable property in a decent neighborhood. With the population of displaced homeowners that went through a foreclosure, you’ve widened the pool of people who want to own but don’t have the credit…just yet.

A lease option is when an occupant has a lease/rental in place, but also has an "Option" to purchase the house at a future date at a set price. You can collect a larger upfront payment for the option, whether it ends up being exercised by the tenant or not. They also tend the treat the house as they're own, and be more hands off renters.

If you haven't done or aren't familiar with Lease Option (or this style of re-sale), don't approach them ignorantly. Do your due diligence and have an attorney review your paperwork, as setting up the deal incorrectly can open a can of worms you could have easily avoided.

As the market shifts, you may notice your rehabs taking longer to sell, leaving you considering plan B. If keeping it as a rental is a possibility, these three examples can help you narrow down if the property will be an adaptable investment into your portfolio.

What do you think? What other criteria do you use when considering if a home is good to keep as a rental?

By Tracy Royce
Tracy (G+) is an Arizona Short Sale Re...
Read more
Tracy (G+) is an Arizona Short Sale Realtor, Investor, Rehabber, and Foreclosure Expert. She also is an avid blogger, vlogger and consultant on all things Arizona Foreclosures.
Read Less
4 Replies
    Michelle
    Replied almost 7 years ago
    Nice article and timely for me as I’m looking at a flip possibility tonight but my exit strategy is to keep it as a rental if I had to as it would definitely cash flow and is also in a good area.
    Tracy
    Replied almost 7 years ago
    Good to know you bought well, Michelle. It helps!

    Report Abuse

    Why are you reporting this?

    Additional Comments (optional)

    Cancel

    Report Abuse

    Why are you reporting this?

    Additional Comments (optional)

    Cancel
    Eric
    Replied almost 7 years ago
    all my properties cash flow like a mad man. I am keeping the rentals and retiring early.

    Report Abuse

    Why are you reporting this?

    Additional Comments (optional)

    Cancel
    Tracy
    Replied almost 7 years ago
    There you go, Eric!

    Report Abuse

    Why are you reporting this?

    Additional Comments (optional)

    Cancel
Rotate Log in or sign up to comment

Related Blog Posts

Landlording & Rental Properties Jan 09, 2021

8 Reasons the Best Landlords Always E-Sign Rental Agreements

By Remen Okoruwa

Make the switch to electronic signatures and reap the many benefits—like a faster, smoother lease-signing process and easy access to signed documents (just to name a few).

Read more →

Landlording & Rental Properties Jan 03, 2021

6 Tips for Listing Your Rental Property Online

By Remen Okoruwa

No one drives around looking for rental signs on front lawns or scans the classifieds in the newspaper. Reach a massive audience by listing your rental online.

Read more →

Landlording & Rental Properties Dec 31, 2020

Meet the Investors: How I’ll Retire on Income From Just a Few Properties Featuring Ron Gallagher

By Alexander Felice

Learn from investor Ron Gallagher’s individual room to rent strategy and how he balances the pros and cons of property ownership.

Read more →

Landlording & Rental Properties Dec 26, 2020

The Top 6 Reasons Why Landlords Should Charge Late Rent Fees

By Remen Okoruwa

Many landlords have a tough time charging late fees—it’s hard to be the bad guy. But there are several reasons why you certainly should.

Read more →
Log in Sign up

Log in

Forgot password?

If you signed up for BiggerPockets via Facebook, you can log in with just one click!

Log in with Facebook

Or
btn_google_dark_normal_ios Created with Sketch. Continue with Google

Let's get started

We just need a few details to get you set up and ready to go!

Use your real name

Use at least 8 characters. Using a phrase of random words (like: paper Dog team blue) is secure and easy to remember.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.

Or
btn_google_dark_normal_ios Created with Sketch. Continue with Google

Why create an account?

Receive a free digital download of The Ultimate Beginner's Guide to Real Estate Investing.

Connect with 1,000,000+ real estate investors!

Find local real estate meetups and events in your area.

Start analyzing real estate properties, we do the math for you.

It's free!

Explore

  • Membership
  • Community
  • Education
  • Marketplace
  • Tools
  • FilePlace
  • REI Resources
  • Perks
  • Glossary
  • Reviews
  • iOS App
  • Android App

Company

  • About Us
  • Press
  • Advertising
  • Careers
  • Stats
  • Contact Us

Important

  • Editorial Guidelines
  • Terms of Use
  • Rules
  • Privacy
  • FAQ

Social

  • Facebook
  • Twitter
  • YouTube
  • Instagram
© 2004-2021 BiggerPockets, LLC. All Rights Reserved.