If you’re in the business of rehabilitating old properties, you may find yourself faced with a choice: is it really the best idea to sell the property off immediately, or should you offer it as a rental property instead? Each option has a number of advantages and disadvantages, and which choice is better depends on a lot of factors:
Time
When the economy is trending downwards and unemployment is trending up, chances are good that fewer people will have the money and economic security to make a major real estate purchase. As such, the number of people renting instead of buying will also increase. On the other hand, a strong economy with low unemployment will see more people ready to take the plunge.
Location
Neighborhoods don’t just determine the price range for a house, they also determine how those houses are used. A house a couple blocks away from a college campus is an excellent site for a room-by-room rental, for instance, while a property with a high land value and a strong neighborhood association will likely attract more interested buyers than interested renters.
Costs And Profits
The biggest upside to renting is the fact that you can use a rental property to give yourself a consistent income so long as you can keep all the rooms full. On the other hand, you’ll also be on the hook for the initial loan and all the other costs of ownership: property taxes, utilities, insurance, and the repair and replacement of major appliances and the building itself. You’ll also need to hire a building manager if you don’t have the time or expertise to handle tenant complaints yourself.
Fortunately, your tenants can take care of much of these costs either directly or indirectly through their rent payments, and you can refinance a rehab loan into a 30-year mortgage (for instance, Hard Money Lenders can easily roll you over from one to the other). However, you need to set your rent to just the right level to both fill your rooms and maintain a profit, and to see if you can do so you need to measure your costs against your location and the real estate market’s mood.