By Glenda Brass, MBA
There has been lots of speculation among homeowners in the Inglewood area about whether to sell or not. For some, the prospect of the impending stadium development has them paralyzed in anticipation of what they think might happen with values and the area. Many homeowners who need or want to move are torn and wondering if they can still move and simply maintain two residences. It’s a good question. Consider the following:
The first and most important thing to consider is whether or not you can afford to own two homes. Though owning rental property can bring in predictable, long-term income, there are still a myriad of potential problems that can come along with it.
Do the math on the return on investment of a rental. If you’re depending on the rental income to cover the mortgage and expenses of the rental property, you’ll need to be able to charge enough to cover that and then some. A rental comes with its own set of expenses—like maintenance, repairs, and, if you opt for it, property management. There is also a possibility of the house sitting empty between tenants (not to mention repairs when one tenant vacates). Make certain that what you charge for rent covers all these expenses, plus leaves some extra for the unexpected, or you WILL end up covering the cost. With that being said, you should probably save from your discretionary income for such an occasion.
If you expect that the home will continually increase in value, you may want to hang on to it and accept any potential monthly loss in exchange for the long term return on your investment. Also factor in potential tax benefits; such as mortgage interest, property tax, operating expenses, depreciation, repairs, property management fees, etc. This may offset any potential negatives you may experience from any shortage.
Being a landlord isn’t for everyone. If you decide to manage the rental yourself, will you be able to tolerate the stress that comes with being responsible for the home you’re living in, as well as a rental, particularly if it’s a distance away? Alternatively, you can spend a portion of the return and hire a local management company that can manage it for you and alleviate you of some of the stress. Though, you’ll still need to maintain some type of involvement, dependent upon the type of arrangement you make with them.
In some cases, whether or not to keep a home or sell it depends upon your financial situation. Unfortunately, if circumstances require you to relocate for work or other personal reasons, renting out the home may not even be an option for you. I would suggest that you weigh your options carefully and honestly to avoid potential challenges in the future.
What’s more important? Why do you think that lenders require much more of a down payment for investment properties than they do for primary residences? One of the reasons for this is that if you had a sudden emergency in your financial situation, which home would suffer the consequences of that…your rental or your primary residence? Individuals who own multiple properties lose their rental properties long before they lose their primary residence. As a matter of fact, the rental property income is used to supplement what’s needed to maintain the primary residence. It’s a matter of survival!
Weigh your options carefully before making the decision to sell or not. For help with a professional analysis, give us a call. The consultation is free!