Property Management Blog

Is It Better To Rent Or To Sell?

Nick Malesevich - Saturday, February 22, 2014

Is It Better To Rent or Sell?


A common question for many people is whether they are better off selling their property or renting it out.  We firmly believe that one of the best paths to long-term wealth is to hold investment property.  We would like to tell you why we feel it is better to rent then to sell:


Short term vs. long-term wealth


When you sell a property, you most likely have one large influx of cash depending on your equity position.  Then what?  Most people will spend the cash in their day-to-day life with no tangible improvement to their personal balance sheet.  Over the long term for most people, this one time influx of cash is simply a blip on the radar.  If instead you convert your property to rental use, you will have an asset and a cash flow forever.  Once this property is paid off you will most likely generate more cash every few years then you would have in total if you sold it.


As a rule of thumb – Sales are short term gains, rentals are forever!


The below compares selling a property for $100,000 with $20,000 equity that would rent for $1,000 a month.  Selling expenses are estimated to be 8%.  We will assume 3% increases to rent per year, 3.5% annual appreciation, and 2% increase in expenses per year.  Model also builds in approx. $5.5K a year in expenses to rent.  Model assumes 25-year mortgage.


Year

Cumulative Sell $

Cumulative Rent $ (Over Expenses)

1

$18,400

$792

10

$18,400

$15,840

15

$18,400

$31,177

25

$18,400

$81,116


As the end of year 25 if you sold your property in year 1 you got a total of $18,400.  At the end of year 25 if you rented, you generated $81,116 worth of positive cash flow and you now have an asset worth over $200K that is 100% paid for and should generate approx. $10K a year in positive cash flow.  If we factored in the time value of money the rental scenario would look that much better.


As you can see the results are not even close, which is why we firmly believe holding your property as a rental is a much better long term financial decision.


Blue Frog Property Management is a full service property management company servicing Appleton, Oshkosh, Fond du Lac, Menasha, Neenah, and the entire surrounding Fox Valley area.


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