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20 Comments on To Sell, Or Not To Sell In This Upside Down Real Estate Market
I have a direct mail marketing piece * Rent Now * Sell Later * while it is targeted to prospective homeowner/clients in the "shadow" rental market, I have had several who have elected to keep their local real estate investment because their stay at their next home may not be long enough for them to be able to sell it when they need to get out so they are renting OR they want the financial security of their current home value and decent appreciation afforded in our area.
First * they need to refinance the property WHILE THEY ARE STILL OCCUPANTS for a lower interest rate OR take out equity. This is important even if they just put the equity $$$ in the bank as a cushion.
Second * they need to UP their deductions at work for their payroll tax withholding so that they have LESS taxes taken out and have these funds to pay any shortfall in their rental income. The higher wage-earner should be the one to do this.
Lastly, they need to be reasonable about the rent and we need to get the property rent-ready and that may involve some money outlay; however, if it is done within 60 to 90 days of putting it ont he rental market, it is tax deductible.
Challenges and opportunities!!
GREAT TOPIC! I hear this dilema alot among potential sellers who are wondering when is the best time to sell their properties is, when NOT in distress.
If they are waiting for the market to return to 2006 levels, at least in my State of Florida- that is NOT going to happen. The market conditions at that time were different and inventory of homes was dramatically less than now exists.
I advise them to consider an approximate equity rate of 6% per year over the life of their investment as about an average for pricing purposes. The length of time to sell is still about a year here. Distressed properties will rotate off themarket faster, because of pricing.
When should they sell? That is up to them. The market is saturated with distressed properties, and more often than not the complications, delays, and conditions of the homes in that situation turn off investment buyers as well as the average person looking for a bargain. Pristine..they are usually not. That gives real sellers a competitive edge.
Robyn -
Personally I think that real estate (even in today's market) is the BEST investment going. If you take care of a property it will take care of you in the long run. Where else can you place a modest investment and then let someone else make your payments and increase your equity? That is IF you follow Wallace's excellen advice and have the homeowner refinance to lower payments. Otherwise they may need to 'feed' the property on a monthly basis. But even so, I'd rather put a small amount into my property rather than into the stock market.
Also, if you are going to manage rental property then you need to become educated on the proper way to do that. Just because you have a real estate license and have been successful doesn't mean you will be a successful property manager. This forum is a great place to learn. I'd also recommend that you check out the National Association of Residential Property Managers (NARPM). Just like here on ActiveRain, NARPM members are willing to share information and the benefit of their experiences.
Good luck and feel free to call on me if I can answer any questions for you.
I also agree with Robyn and say that real estate is still the safest investment out there. I own a couple of rental properties and I am glad I didn't sell any of them. Now the market is on an upswing and prices are beginning to rise again. I manage all of my own properties and manage properties for others as well and it's a great way to get valuable experience.
Thank you All for those great comments! I too feel that keeping a home is the easiest and safest way to enter the real estate investment market, and that this is an investment possibility that can be a great addition to any portfolio!
Spoke with a gentleman the other week who worked his entire life for the same company, had his entire retirement portfolio tied to the stock and bond market, and in the past year it has been desimated! Gone!!! And he's had to take a handiman job just to make ends meet! Just one investment property would have changed that entire scenerio!
I think that encouraging real estate investments is an important role, and appreciate all the valuable information, and leads you shared with me!
Robyn Christoffersen
Great post. I think it all depends on what an owner is trying to accomplish. They can keep their current home as an investment or sell. They may not make as much as they would have two years ago, but by leveraging themselves they will make it up on the buying side.
I always joke with my clients that I'm the only agent they'll ever meet that will try to convince them NOT to sell their house! If a person can afford to rent and keep their property, it's a agreat way to start building their real estate portfolio!
Robyn, such a great post and I am with Allen from the Team Honeycutt. It is up to the owner and what they are planning to accomplish. I tell my sellers to sell when they have to and when they can wait to wait.
When they do need to move there are other options then selling, and that is then a discussion we have later with them.
Again, thanks for all the points you each have made. I've enjoyed reading, and contemplating your points of view!
It's true that it can be a win-win situation whichever way they go, because if they sell, they can make up the lost equity on the purchase of a new home. If they choose to keep it, they will reap many benefits down the road.
I think that we shouldn't be afraid to share every option, with all its pro and cons with our clients, so that they are able to make an informed choice that best meets their individual needs.
Every case is different. If the clients needs to move and wants to buy, It may make sense to sell even at a perceived loss to get a good deal at the other end. Plus, owning a rental far away can be trouble for the faint of heart.
We are personally going through this decision right now. We purchased a home in Northern Michingan last May (great short sale opportunity). We did this with relocating in mind this june when my husband retires. We planned on selling our home in Fountain Hills, Arizona. Well that plan was easier said then done. Arizona is so incredibly flooded with foreclosure and short sales, it isn't even funny. I moved to our home in Michigan in October to get my real estate business started up here. We are not contemplating renting our home in Fountain Hills for a few years and see what the market does. I believe that is a very smart more for home owners to make when they want to relocate, as long as the rent that they can get for the properties covers most of their monthly cost of the proeprty. It is always risky having a renter but you know the old saying - Nothing ventured, nothing gained.
All so interesting and true!
It's becoming apparent that the sooner a homeowner is given their choices, options, and opportunities, the easier, and more secure in their decision they will be!
We have 2 clients in this situation right now, and one is opting to sell, while the other has chosen to rent the house. Each have specific reasons why this is better for them, but they have expressed a great deal of gratitude to each of you for your opinions, and points of view, since I forwarded this blog post link to them, to read, review, and discuss as they made their decision... Thank You... you guys rock! You made it easier for them to make the decision that felt right to them, without worring whether or not, they made "the wrong choice" because they realized after reading your comments, that there is no right or wrong choice, only the best choice for them!
I look forward to many more productive, and informative experiences with all who have shared their experiences, expertise, and opinions.
You said it all Robyn! I think that if the homeowner will still walk away with enough equity to buy their next home, that even though their equity may not be what it was a year or two ago they will benefit from the down market on their purchase and end up ok in the end. The unfortunate truth is that many homeowners don't even have enough equity to break even.
You've hit on an important point here Cheryl... those who's equity has been reduced to the point that they can't afford to use a real estate agent, even if they wanted to!
I think that the ranks of FSBO Listings are filling with people in that very situation... getting a Marketing Agreement/Commission Agreement that allows an agent to market the property in whatever manner the agent/s want to, with a preliminary commission agreement that guarantees payment of a partial commission only to the agent who brings the ready, willing, and able buyer is becoming more needed, and more common. In a situation like that, it really becomes a win-win proposal.
Then you have those who are Upside-Down... that's an entirely different discussion.
If they have to sell, it is always theright time. I am a firm believer that the markets will get a lot worse before they get better. Sellers may be able to sell next year, but at a substantially lower price. As long as they are OK with that...everything is cool!
It is near impossible to get someone to sell their house if they don't want to. By presenting the renting option to them it may build a good repor with your client. In a few years they will return to you for the sale if you provided them value and great service. Not selling is just an investment in time.
Excellent post really. I agree with Jim, as long as they are realistic with eir selling price, it's OK to sell now .
You're absolutely right Robyn, this is such a difficult decision to make. I've just gone through it myself. Sell now, and get what you can while you still can, or wait... for how long?
If you decide to rent the property out, certtainly on paper it looks great. Someone else is paying your mortage, maybe even part of the mortgage on your new home, if your expenses aren't too high. But Recently I've seen what some renters do to homes, and I can't believe people live like that. The other risk is that certain renters, like those who turn perfectly good homes into Grow-Ops can totally ruin the future value of the home.
All of these possibilites need to be presented to our clients so they can make an informed decision.
Bernice Dubon
Royal LePage Solutions
www.yourhomeincalgary.com
My market niche is investors, but it only makes sense to keep the property that you have rent it out, allowing someone else to pay your mortgage + make positive cash flow that can go to savings or help pay your new mortgage. Also strengthen your credit, because your maintaining 2 mortgages successfully. Then as I read earlier you can sell the 1st investment, take the lump sum of money + pay your new mortgage down tramendously.
Really wonderful points you each make...
We can't predict what the market will do in the future, except that we can look at the trends over the past 50-60 years in our own communities, and show that to the clients, as further evidence that the market is sure to rebound... we just can't predict with any certainty the exact moment!
Some clients feel that renting is too big a risk-possibly because they can't get over the hurtle of the house being a "Product" rather than a "Possession"... and it isn't our place to attempt to force that issue.. only assist them is feeling secure with whatever decision they come to!
As to how renters live in, and abuse homes... I've seen too many owners that take worse care of a home than any renter I've encountered! As a seasoned stager, we've had experiences where the home was in such horrific condition that the family had to move out, or it wouldn't have been possible to get it cleaned, repaired, and ready to get any kind of a decent offer!
We have suggested to owners who want to rent, that they set aside a budget, for use when the time comes to sell the property... just plan in advance for painting, repairs, maybe flooring... but much of the responsibility for care of the property lies on the shoulders of the property managers! Whether the homeowner does it themself, or hires someone! It is critical that a problem renter is not allowed to take damages, or neglect to a level that the cost to repair is prohibative...
What do you think about the role property managers play?