Should You Rent Out Your Home for a Year Instead of Selling?

Your house has been on the market for four months. The showings have slowed down, the offers are not where you hoped they would be, and you are starting to wonder about a different plan. Put a tenant in for a year, collect some rent, and list it again next year when the market picks up.

It sounds reasonable, and right now it is one of the most common reasons homeowners call us about property management. When the plan is to rent for one year and then sell, our advice is usually the same. Sell now.

That may sound strange coming from a property management company, so here is how we look at it.

Start With an Optimistic Scenario

Say you own a $400,000 home and you are hoping for 4 to 5 percent appreciation over the next 12 months. That would be a very good year in almost any market, and it would add roughly $16,000 to $20,000 to your sale price.

So even before we talk about risk, the plan already depends on things going well. Then there are three costs that tend to show up once a tenant moves in, and each one chips away at that projected gain.

Reason 1: Expect a Major Repair in the First Year

We cannot fully explain it, but we see it again and again. Once a home is rented, something significant needs attention. It might be a water heater, a furnace, or a larger plumbing problem.

Plan on at least one repair in the range of $2,000 to $4,000 during that first year. As the owner, that bill is yours, and it comes straight out of the appreciation you were counting on.

Reason 2: Your Home Shows Best Right Now

Today the home is either vacant and clean or you are living in it and keeping it ready. The lawn is green, the flower beds look great, and every room reflects the care of an owner. That first impression is a big part of selling for top dollar.

Tenants, even good ones, do not treat a home the way an owner does. That is not a knock on tenants. They simply do not own the property, so they do not have the same pride of ownership. A year from now, the home will most likely not present as well as it does today, and buyers will notice.

Reason 3: Showings Get Harder With a Tenant in Place

Right now you can say yes to almost any showing request, even on short notice. That flexibility matters because every buyer who walks through is a chance at an offer.

With a tenant living there, we are required to give 24 hours notice before showing the home. Some buyers will not wait, and some agents will move on to the next house on their list. Fewer showings usually means more time on the market and a lower final price.

What It All Adds Up To

Put the three together and the picture changes quickly:

• Repairs: a likely $2,000 to $4,000 bill during the year.
• Condition: a home that will not show as well as it does today.
• Access: fewer showings because of required notice to the tenant.

On top of that, you are betting that the market moves in your favor over the next 12 months. If it stays flat or dips, you carry all three costs and get nothing back for the wait.

A Better Way to Capture That Return

If you feel like you are leaving money on the table by selling at today’s price, consider selling anyway and putting the proceeds you would have been waiting on into a short term Treasury bill. You earn a guaranteed return with no tenant, no repair bills, and no market risk.

In many cases that safe return will come out close to what the rental plan was supposed to produce, without any of the headaches.

When Renting Out Your Home Does Make Sense

Renting can be a smart move if you plan to hold the property for two years or longer. Over a longer stretch, the rent coming in can cover repairs and maintenance, and the market has more time to deliver the appreciation you are hoping for.

If you are open to keeping the home as a long term rental, that is a very different conversation, and one we are glad to have.

Our Honest Recommendation

We would love to help every homeowner who calls us, but property management is not the right fit for everyone. If your timeline is a year or less, our recommendation is to take the price the market is offering today and put your money to work somewhere else.

If you are weighing your options and want a straight answer about your situation, reach out to Doc and the team at Cobalt Property Management. We are happy to talk it through, even if the answer is that you should sell.