We see them all the time – houses in need of major renovation, often referred to as “fixer-uppers.” Depending on the situation, these can be great real estate investments with promising returns for the owner once renovations are complete. Perhaps the renovations are made to a homeowner’s current living area, with the end goal being a possible move once the project is complete. However, once these renovations are done, homeowners are left facing a bigger question: what do we do next? Do we sell, or do we rent our new investment property? As with just about any situation, there are pros and cons to both. At Evolve Home Loans, we’re here to help explore both sides of the coin in your quest to make the decision that is right for you!
If potential buyers see that a home for sale has been recently renovated and updated, the prospect of an easier move-in and inspection process can make for a quick sale, and perhaps multiple offers, increasing the up-front profit from said sale. Selling can also cover any mortgage or refinancing dues that may be outstanding, eliminating a huge chunk of debt. And, of course, once the house is sold, all maintenance on the property is out of the seller’s hands – no more costly repairs or upgrades, unless the seller decides to take on a new project!
Of course, when selling and looking at the profit, one needs to take taxes from the sale of the house into consideration. Depending on how long the homeowner has owned the house, taxes can take a huge bite out of that profit, especially in a “flipped house” situation (House flippers are classed as dealers, and taxes can actually double for a sale!). Fluctuating markets and home prices need to be considered as well. What looks like a “sure thing” at the onset of a renovation can turn into a “money pit” should a housing bubble burst, or home values decrease. And, of course, a worthwhile return on investment is also dependent on a good realtor – a bad one can result in missed opportunities for selling a house at an optimal profit!
Should a homeowner choose to rent out their newly renovated property, one of the biggest benefits is the addition of a steady income flow from collecting monthly rent. This also changes the tax situation that one may face in the sale of the home, as the owner is now a landlord and not a dealer. These reasons alone make very enticing reasons to hang onto that property and renting to tenants instead.
However, to paraphrase a popular saying, with great opportunity comes great responsibility. Unless one pays a property management team, being a landlord is extremely hands-on. The property owner is responsible for all upkeep to the property. Regardless of any recent renovations, in the world of home ownership, damage can happen and repairs will be necessary. On top of property upkeep, a landlord may face an unpleasant task of dealing with less-than-ideal tenants as well. As a landlord, one’s day-to-day activities may include the following:
- Collecting Rent
- Advertising Rental Properties
- Performing Due Diligence on Potential Tenants
- Keeping Up to Date on Rental License Requirements
- Maintaining Accounting Records
- Maintaining Good Tenant-Landlord Relations
While not attempting to discourage using a newly renovated home as a rental property, the team at Evolve Home Loans is here to help make a potential landlord aware of all that such a decision entails so the situation can be entered with a good grasp of responsibilities.
As seen above, each option definitely has its plusses and minuses, with no decision being a “right” or “wrong” answer – only what is right or wrong for you. Whether the decision is made to sell or rent your newly renovated property, Evolve Home Loans has experts to help make an educated choice in getting the most out of your property – don’t hesitate to contact us today!