With the average home price increasing 5.3% over the past year, the fix and flip real estate market remains both lucrative and competitive. While unforeseen obstacles are part of the business for fix and flip investors, inflation and higher interest rates have made finding and capitalizing on home-flipping single-family projects more difficult.
Currently, U.S. housing affordability remains near an all-time low. Many of today’s consumers are swayed toward rentals–creating excellent long-term investment opportunities in the single-family rental markets. Short-term fix and flip exit strategies remain highly profitable. This leaves investors with residential investment properties wondering:
“Should I sell or rent my house in 2024?”
When looking for the right answer, it’s best to take an objective look at ROI potential. One way is to use a rent vs. sell calculator, which we’ll discuss below. Then you’ll need to consider local market demands, personal finances, and overall business goals. Additionally, you’ll want to take a more subjective approach and weigh the pros and cons of renting vs. selling.
Rent vs. Sell Calculator
A rent vs. sell calculator can provide valuable insights into which investment strategy is most profitable now and in the future. By inputting several data points, the rent vs. sell calculator can provide a comparative analysis to help inform your decisions.
To generate the rent vs. sell calculations, you will need the following data points:
- Property Value Estimations – The current market value of the property. Use these formulas to determine the value of a renovated fix and flip property.
- Rental Income Projections – An estimate of the monthly rental income your property can generate. Find these estimates by analyzing comparable rental properties in your local market.
- Selling Costs & Proceeds – All costs associated with selling the property, including real estate agent commissions, closing costs, renovations, holding times, etc.
- Rental Expenses – Rental costs can include property management fees, maintenance fees, property taxes, insurance, HOA fees, etc.
- Appreciation Estimations – Using historical market trends and future projections, estimate the annual home price increase–the national average today is 5.3%.
- Tax Implications – Depending on how long you’ve owned the property, you may need to pay a capital gains tax on a sold property. And, unless you’ve cracked the code on how to sell a rental property without paying major taxes, you’ll have to add in rental income taxes.
Rent vs. selling calculators are an essential tool for investors to understand:
- How much money you stand to gain from a short-term selling or long-term renting strategy
- The property’s estimated appreciation or depreciation over five, ten, or twenty years
- The right time to sell or keep a rental property
Weighing the Pros & Cons of Renting vs. Selling
In the end, the decision to rent or sell your investment property comes down to personal finances, market demands, and investment goals. Weighing the advantages and disadvantages of both–based on your unique situation–will ultimately determine the right path to take.
Let’s look at some of the biggest pros and cons of renting vs. selling your investment property:
Pros of Renting
- Steady Income Stream: Rental properties provide investors with a consistent monthly income stream. In most scenarios, investors use tenant rent payments to cover mortgage payments, property taxes, and maintenance costs.
- Property Appreciation: Historically, real estate values tend to go up. So, holding onto and renting a property for a significant period could translate into tens of thousands, or even hundreds of thousands more when you sell later.
- Tax Benefits: Rental property owners often have access to numerous tax deductions, including interest, property taxes, maintenance costs, and depreciation.
- Flexibility: Renting provides the flexibility to create a passive income stream while waiting for the home-selling market conditions to improve.
Cons of Renting
- Time-Consuming: Managing a rental property can be time-consuming. You must find and screen tenants, handle repairs, and deal with any other property and tenant issues.
- Evolving Regulatory Challenges: Staying up-to-date and compliant with constantly evolving regulatory challenges in the residential rental property market can be a stressful and potentially costly endeavor.
- Tenant Risk: Following the COVID-19 pandemic, tenants have never had more rights or authority in the rental market. Problematic tenants who fail to pay for damages or rent can quickly turn a sound rental investment into a regret.
- Rental Market Fluctuations: Economic downturns or local housing market fluctuations can impact your ability to find tenants or turn a profit.
Pros of Selling
- Immediate Cash: A short-term exit strategy provides investors with a lump sum of cash to fund future investment opportunities or pay off debts.
- Less Long-term Hassles: Aside from a lump sum, the lack of long-term responsibilities makes selling an appealing option for investors–avoiding unruly tenants, property needs, or ongoing repairs.
- Capitalizing on Market Conditions: As mentioned, property prices continue to rise. Finding a homebuyer in today’s market can translate to a hefty profit for fix and flip investors.
Cons of Selling
- Loss of Long-term Appreciation: Unlike long-term exit strategies, like renting, selling your property eliminates any potential gains from the home’s appreciation.
- Transaction Costs: Real estate agent commissions, closing costs, and potential capital gains can reduce profits.
- Holding Times: While property values are reaching all-time highs, the homebuying market is less active, leaving investors vulnerable to longer and more costly holding times.
Whether you rent or sell your investment property, the endeavor will come with its share of pros and cons. The decision ultimately lies in your overall business goals, local market conditions, and, most importantly, your financing.
Finance of America Commercial: Your Real Estate Investment Capital Partner
Finance of America Commercial (FACo) offers the most reliable and flexible long- and short-term financing options on the market. Whether you’re looking to rent or sell your investment property, our flexible terms, competitive rates, and prepayment options can meet your specific needs.
Finance of America Commercial’s Rental Portfolio and Single Rental loan options offer:
- Competitive 30-year term loan options
- DSCR with no W2s, paystubs, or tax returns required
- SFR, warrantable cons, townhomes, PUD, and 2-4 units eligibility
Our team of professionals has the knowledge and insights to help you weigh the pros and cons of renting vs. selling, determine the right option for you, and match you with the best financing to fund your investment project.
Whether you’re looking to rent or sell an investment property in 2024, FACo has the experts, tools, and financing to get it done. CLICK HERE to schedule a FREE consultation with a FACo financing expert today!
