Corporate Owned Office: Renters Warehouse

Renters Warehouse, LLC, d/b/a Renters Warehouse®, located at 13200 Pioneer Trail, Suite 100, Eden Prairie, MN 55347 with a license in good standing in the state of MN
Broker Name: David Krull; MN Broker License No. 40422157
Company Name: Renters Warehouse; MN License No. 40445630
Rent Estate Advisors are Licensed Real Estate Salespeople or Brokers in the state of Minnesota

Handbook to renting or selling your home.

Introduction

 

Are you a property owner -- or a real estate investor?

You may never have considered the prospect of real estate investment. At the same time, you may have been considering it for years, but have yet to make the leap. The reasons for getting into real estate vary. Regardless of your reason -- whether you’re a first-time home buyer, upgrading to accommodate a growing family, or you’re in it to turn a profit -- it’s comforting to know that real estate is still one of few investments that has a long-proven track record, and a potential ROI beyond that of your 401K, stocks or bonds. When it comes to stability and tax advantages, real estate investment simply can’t be beat.

At Renters Warehouse, we know this all too well. So when one of the most commonly asked questions we saw popping up is ‘should I turn my property into a rental income property, or should I sell?’, we decided to share three quick ways to analyze the opportunity.

*The information contained in this Handbook is intended for informational purposes only. It is not intended, nor should it be used as a substitute for tax, accounting, investment, legal, or other professional advice. Renters Warehouse recommends working with a licensed tax professional and certified financial advisor to help you analyze the financial implications of real estate investment. This Handbook provides examples only. Actual results and experience may vary.

1. The Basic Sell Analysis

Think you are better off selling your home? Do the quick math to understand how much you could get today. A few things to remember:

  • Selling your home is a one-time transaction, not recurring revenue.

  • Realtor fees are typically around 6% of the sale.

  • Your house may not sell for the value you want or close in the timeframe you’re

    expecting.

    Below is an example calculation for a home priced at $300,000.

Now, let’s take a longer-term look at your potential return on an investment property.

2. Cash-on-Cash Analysis

We like to call this The Napkin Test and have created a quick video to show you how we make these calculations. Simply put, this is the annual cash flow divided by the cash invested. A few things to keep in mind:

 

Annual Cash Flow = Cash-On-Cash Analysis /  Cash Invested

 

 

  • After your mortgage is paid off, almost all of your rental income becomes profit!

  • In most cases, your cash invested is your down payment.

  • The ideal rental price is based on: the desirability for the unit, market demand, the ability to attract the perfect tenants, is priced on par with competing units, and leads to profits.

And there you have it. Now you have two important numbers to compare: how much you’d make selling your property today versus your potential rate of return on an investment property. But we aren’t done yet. Before you make any decisions to rent or sell your home, there is still one more comparison to make ... how your rental income property measures up to other investments.

3. How Does Your Property Measure Up To Other Investments?

Holding your property for rent may easily outweigh the benefits of the one-time sale, but you might want to see how it compares to other investments, like your 401K. The table below allows you to make a simple comparison calculation between the two over a 1, 5, and 30- year investment.

 

Now that you’ve done all the basic calculations, you have three numbers to compare; the revenue from selling your home today, your investments, and the value of your home in 30 years. A short-term payout may be a good option if you are needing immediate cash, but as an investment opportunity you risk losing out on long-term gains.

So tell us: are you a property owner or a real estate investor?