Selling Your Home is Getting Harder, Try Renting It Out
Most homeowners know that mortgage interest rates are skyrocketing (currently over 7%) and if you were one of the smart or lucky ones to lock in your 2-3% interest rate in the past couple of years, is it a good idea to lose such a low rate by selling your home?
Have you thought about holding your low-interest rates and just renting out your home? It could be a wonderful investment opportunity.
As an experienced investor, real estate agent, and property manager at Wishlist Property Management, I’ll quickly break down your monthly profits and how to go about keeping your home and historically low mortgage rates.
The Simple Math
If you purchased a home for $500,000 in 2020, your mortgage is around $1,700 a month if your credit was great, you shopped for low rates, and landed something in the 2% area. A $500,000 home in NC will rent for over $2,500 a month in most cases (obviously a lot of variables here to consider). That’s an $800 profit a month if you decided to rent it out.
If you purchase today, in 2022, your same $500,000 home has a mortgage of around $2,700 with the current 7% interest rate. You’d actually lose money if you tried to rent it out.
Therefore YOU have a wonderful investment opportunity if you were to hold that 2020 home and turned it into a rental. Don’t get rid of it unless you have to.
Upcoming Market Shift
There is a ton of fear entering the market and an expectation that real estate prices will continue to drop until 2024. But here’s the deal, this is much different than the crash of 2008. That was a crash caused by real estate - the largest in the housing industry since the dawn of the United States. No one is expecting even close to a similar outcome in this cycle but rather other industries will further feel the effects.
We still have a housing shortage (unlike 2008) and demand for housing is strong. So let’s use the harshest estimate of a 20% decline in your market. Your house drops to $400,000 in value and your net worth loses $100,000 now. If you’re renting it out, WHO CARES? You are still getting an $800 a month cash flow since rents hardly take a hit during recessions. You only lose that $100,000 if you sell at the bottom, not if you hold for the market to recover as it always has.
The market is already slowing so if you’re looking to get out, it may be smart to do it immediately, but ultimately who knows what’s going to happen. We only have history to show us the future.
Property Management
How does it all work?
It’s simple and there are resources to help you. First off, you can go to Zillow and list your home yourself. Screen tenants and their credit by using rentprep.com. Call their last 2 landlords. And make sure they meet any other requirements you may have (pets, job history, income, etc).
Or call up a property manager in your area and ask some questions. They’ll typically come to take a look at your property to make sure it meets certain standards and ask or answer any questions you may have.
Who to look for?
Company reviews are a good start, but just like with tenants, you need to dive deeper into just the “credit score” of the company. Get referrals for them by asking around on local Facebook groups or through others that have their properties managed.
A company like Wishlist Property Management out of the Lake Norman NC area is a good example. Of course, I am biased because I AM a part of Wishlist, but there are standards that you should be looking for that align with what we offer.
- -A+ communication. Since we manage AirBnbs and traditional long-term rentals, we are experts in communicating with our guests and homeowners. We provide our phone number on a pamphlet attached within a kitchen cabinet, as well as a direct emergency plumbers number for immediate emergencies.
- -Accounting that makes sense. Reading spreadsheets isn’t everyone’s expertise. Therefore we make all financial documents (as well as contracts) easy and appealing to read.
- -Cleaning/Handymen. Again - AirBnb pros. We clean and fix up properties every day so we exceed the standards on long-term rentals. We’ll have the place fixed up in a jiffy. Make sure your
- management team has a network of contractors.
- -Offerings. Check fees, start-up costs, transfer costs, etc. Do they offer professional photos? Do they charge for additional showings? Ask these questions.
That pretty much sums up the why and the how of getting your house set up as a rental instead of getting away from that crazy low-interest rate.
*https://images.kw.com/docs/1/0/4/104917/1284599574128_7_Reason_Why_it_s_a_Good_Time_to_Buy.pdf
If you have to sell, you have to sell, but just know that despite the narrative you see, the last 3 years have actually been the most AFFORDABLE years in recent history to buy a home. Compared to monthly income, the monthly mortgage is lower than in recent years. You have a diamond in the rough so don’t mess this up!
For more articles on property management for both Long Term and Short Term properties, check us out here: www.wishlistnc.com/blog