the pros of renting instead of "flipping"

Last time, we discussed the downside of renting, and the pros of selling. Today, let's talk about the pros of renting, and the downside of selling.
Whenever you purchase a house for investment, you immediately assume all of the financial responsibility for that particular property. As we discussed last time, this includes the utilities, repair costs, taxes, insurances, ongoing maintenance expenses, municipal & inspection expenses, etc. This sounds like a lot of expenses for little amount of financial gain and lots of liability, doesn't it? But, there is a definite upside to renting versus selling that most people do not know about. Let's go through the following fictitious example first for clarification.
Let's say that we purchase a single family home for investment. Let's say that we acquired the property for $40K , and that it needs a lot of work. Looking at the comparable properties that have sold in the area, let's assume that the 3 bedroom, 1-1/2 bath home with 1300 sq. ft. will sell or appraise for $95K . Let's also assume that the total cost to repair will be $12K. Now, we have $52K in the property, and are looking at our options. What is the market like? Is it appreciating, stagnant, or depreciating? Assuming that the market is depreciating (as it is in our area currently), then what could you make off of the property if you sold it? Will you make $10-20K after expenses? How long will it be on the market? Will you have considerable carrying costs which will decrease your profits? How about a lower sales price? Will this help to sell it? Maybe adding some perks for the buyer might help. Keep in mind that perks for the buyer are out of your pocket. Perks could include closing cost assistance, purchase of appliances, change of cosmetics, or any other multiple help that you, the buyer, or the agent could think of.
Now, if you would wait for another year to sell, will the market be any better? Will you have more profit if you were to sell it? How about 2-5 years? Then would you be in a better position? But, you ask, what am I going to do about money in the meantime? Perhaps all of your working capital has been sunk into this house, and you need to make money on this house to pay off bills, free up cash, or buy another property. Here's one of best benefits of renting out your property... you can keep the property and sell it when the market is at it's peak by refinancing now, and pulling out cash (tax free), and rent out the property, generating free cash at no monthly expense to you! WOW!!! Did you catch this incredible opportunity? Think about it... you can pull out tax-free cash at no monthly expense to you, and wait out the market conditions, providing a much-needed service to the community, all in one fell swoop!
But, you say, tenants are not good for me. I just don't feel comfortable with meeting a prospective tenant, and taking the chance of having to fix up my property a second time. Well, you could always pay for a property manager to manage the property for you. They would be responsible for screening the tenant(s), pulling credit, conducting background checks, checking job stability and personal references, finding contractors to repair the small maintenance issues that arise from time to time, and everything else required to make your landlord experience a good one. Of course, you are going to pay for this service, reducing your monthly cash flow.
How about selling the property on a lease purchase deal, with a sizable down-payment? You can make the buyer responsible for the maintenance, and the tenant/buyer will have a vested interest in keeping the property in good shape. You would screen these people before you sign the contract, reducing your risk. If they run into financial difficulty, and cannot make their monthly obligation to you, then you would still have the down payment, plus you will still have the property to sell. You could either put your property on the market and have a settlement, or you could sell on a lease purchase again.
Sometimes, it is much better to rent out your property than sell it. You decide. It definitely depends on the property that you are looking to purchase, the location, the numbers, and the market.
Remember that mentor that we spoke about before? Now, is definitely the time to talk to them, and review your options.
If you have any questions, feel free to comment, or send me an email. I will be happy to answer them.
Talk to you later.