In today’s “difficult” market, sellers often consider renting their home if their property does not sell shortly after being listed. We’ve worked with a number of folks that have asked about, and even tried, the rental option, with a wide range of results. Each time the topic comes up we evaluate the unique factors in the situation rather than giving a standard one-size-fits-all answer.
Sellers initially consider the rental option because they want to get the most they can for their property. This is a natural desire, and one that we whole-heartedly support, since our job is to sell their property for as much as we can. The thought is that perhaps if the home is rented for a year that the market will have time to recover and can be sold for more next year.
Here are some thoughts about renting instead of selling:
1. Nobody knows what the housing market is going to do in the coming year. There are a lot of factors that play into home prices (availability of mortgages, percentage of buyer budget available for housing, consumer confidence, local economy, …) which even the brightest minds don’t pretend to understand. We can give a range of what a home will sell for in the current market, but there is no way to accurately predict the value of the home next year.
2. Being a landlord can be a lot of work. We own a rental propety and have a sense of what it takes to be landlords. The effort level is very erratic with short periods of high-priority tasks (finding a tenant, responding to issues) mixed with long periods of clear sailing. When an issue comes up it requires your immediate and complete attention. Your ultimate goal is to sell the property in the near future, so you want it to remain in good condition. Which leads right into the next point.
3. Tenants don’t maintain homes as well as owners. They have no real investment at risk (other than their security deposit), so there is no built-in incentive to take care of the place. Most tenants are very responsible and do their best, but it’s just not the same. Once the year passes and it’s time to put the property back on the market the home will not show as well as it does right now.
4. Many folks are not able to command enough rent for their peoperties to cover all their costs. In addition to the mortgage payments (mortgage, taxes, insurance), there are also maintenance costs (repairs, lawn, snow, …) and the time and travel required to actually oversee everything.
5. Finally, there have been more houses than usual rented over the past year. Some owners are trying to time the market. Others are in financial trouble, and have to choose between bringing money to closing or continuing to struggle to make their mortgage payment. They don’t have enough money to sell, and they can’t afford to stay, so they choose to find a tenant for their home and then go rent a less expensive place for themselves. Either way, there are more homes than usual waiting for the market to turn more favorable. And when it does, there will be more homes than usual for sale, creating excess supply.
Renting a home can be a viable alternative to selling if the circumstances are right. Among our clients, one was able to sign a six month lease, successfully covering their carrying costs while waiting for the seasonally more active spring market. Another client’s location was far more attractive as a rental than anything else, which worked out fine because they were comfortable being landlords.
In summary, renting can seem like an attractive option to sellers not getting the price they want. However there is much more uncertainty (risk) than most initially believe. Consider the above points and talk it over with your agent before pulling the trigger.