To Sell Or Not To Sell... And Maybe Rent?
That is the question.
We've had frequent conversations with frustrated and grumpy property owners who missed the peak of the selling frenzy when mortgage interest rates were half of where they are now. Our rebalancing market has many sellers choosing to forego selling today in the hope of a stronger market tomorrow and beyond.
Unfortunately, it's always a challenge to time the market with certainty. Yes, it will eventually bounce back, but when? Even the most knowledgeable forecasters are unsure, and historically accurate crystal balls are cloudy, at best. Mine included.
With the market's power dynamic shifting in favor of buyers, we have owners seriously considering renting out their properties instead of selling them. After all, our current rental market is robust, especially relative to the sales market. Rents are at all time highs, and quality rental inventory is scarce. In a year or two, when inflation and mortgage rates come down, when the stock market settles, when COVID is firmly in the rear-view mirror, the war in Europe is history and there are no other unexpected market disruptions, it should be a better time to sell - no? It is a calculated risk of course.
On the other hand, will a tenant willing to pay top dollar actually pay, and if not, will landlord tenant courts support evictions? Will a tenant take good care of the property and show it responsibly toward the end of the term of the lease? We can hope, but there are no guarantees despite the most thorough due diligence.
The solution we sometimes suggest is to offer the property for rent and for sale simultaneously and see what happens. This can message a few things to potential buyers and potential renters:
1. The owner of the property has solid options and is not beholden to those buyers on the fence hoping for "a deal" or a price cut. These buyers should think again. Few sellers are desperate. Buyers' realistic options are to either pay up and purchase now or know that someone else will rent this home rendering it unavailable for purchase.
2. There may be an opportunity to 'test drive' the home by renting it initially and, if the renter loves it, buying it down the road. There might even be the potential for applying a portion of the rental payments toward the purchase price.
3. The home's high rental value bodes well for options in the future.
4. The costs and benefits of renting versus buying this property should be carefully considered. Whether or not renting is cheaper on a monthly basis, rent payments do not build equity or deliver tax breaks, and are not immune to steep rent increases based on inflation that may run hot for several years. On the other hand, a rental requires a small capital commitment and offers more flexibility.
By offering a home for sale and for rent simultaneously, an owner keeps his or her options open and need not choose a course of action prematurely.
Different markets offer different opportunities and challenges, and different owners have different ideas about becoming a landlord. Does an owner have the mindset to manage a property and deal with tenant drama? How likely is it that the market will turn around, and when? Will it be necessary to invest to transform a home into a rental property, and what will be the investment required to put the property back on the market for sale at a later date? Are there tax implications to consider? If the home is a condo or coop, what are the building's policies on rentals? There are so many factors to consider.
It is time for frustrated and grumpy property owners to move forward. No pity parties, and no crying over spilled milk. Consider all the options, weigh the pros and cons, and strategize with trusted advisors about customizing the best course of action.