Renting vs. Selling units

6 Replies

I would do whichever gave me the most money over the period I wanted the money. If I can sell them all today and make a $100K or rent them $10K a year, I'm selling. Conversely, if I can only sell them for $100K, but can make $100K/year renting, then I'm a landlord. I think my threshold would if the annual rental income was more than about 20-25% of the sales income, I'd keep them. But, that's just me.
Jon

I'd have to agree with Jon. It really all depends on the financial goals you plan on accomplishing with the building. Once you figure out what you plan to accomplish with it, then the answer to your question should be much easier.

It depends on your cost of money. Lets say you are borrowing at 8%
If you have $100k of net profit in the building then your net cash flow would have to be $8,000 per year to be indifferent. If you earn less sell. If you earn more keep.

This is if you can borrow without selling. If your $100k earns you more than you would pay for borrowing that money and you can actually still borrow money for your next deal, keep the building.

Originally posted by "Arnada80":
Say you are developing a building in NYC. 5 floors lets say with 10 apartments total. Would you rent them out or sell them?

1. I would have a plan that looks at all the options and does not depend on one option being the only one that works.

2. I would never start the project until I knew what my options are. Markets change. A project might make no sense if a market changes. Hence you do not want to start what is effectvely a long term project unless you were very confident you had exits that will still work.

3. Lenders do not fund construction projects if they do not see clear exits.

Well said John.

No one would jump into a pool if they didn't know how to get out. I relay a story of when I was younger and was touring Mexico. We found a "cenote" which is basically a sink hole of water.

Being young and dumb I ran and jumped in. The water was warm so I swam around for a while. My friends even joined me. But then we got tired and realized there was no easy way out. No path, etc. We had to climb a steep rock wall being wet and now tired.

Moral of the story: KNOW HOW YOU ARE GETTING OUT BEFORE YOU JUMP IN!

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