The decision to sell or rent out your newly remodeled fixer-upper is a tough one. Both paths have advantages and disadvantages. It is important to consider your needs and financial situation when deciding whether to rent or sell. The decision will affect the amount of time you spend on a property as well as how much money it generates for you.
Pros & Cons
Renting Your Home
There are many reasons why a person should rent out their home. As a landlord, you can charge rent on the space (generating income), claim tax deductions associated with property ownership, and deduct any costs associated with the upkeep of your tenants' homes (e.g., cleaning services, etc.). A homeowner does not have these same benefits.
● Financial and time commitment required to maintain the property ● Potential to deal with difficult tenants ● Lower IRR ● Need to get a rental license via inspection
Selling Your Home
Selling a newly remodeled fixer-upper also produces a profit. The biggest advantage being the lump sum payment upfront.
● Lump-sum payment ● No ongoing responsibilities
● Potentially high tax liability ● No recurring income ● Must find a real estate agent ● Need to schedule around showings
Your Responsibilities as a Landlord
If you decide to go the landlord route, be aware of all that is involved. You can expect to visit the property often for routine maintenance. You will have ongoing responsibilities to pay for like utilities (e.g., water, sewage), grounds keeping (e.g., landscaping, etc.), and repairs to damaged property, etc. You'll also want to carry liability insurance that covers rentals.
Here are some other important tasks you may be responsible for:
● Collecting rent payments ● Receiving and reviewing tenant applications ● Performing background and credit checks on potential tenants ● Maintaining records of all rental transactions, income, and expenses ● Staying up to on rental license ● Walking the property on a regular basis
Home Improvements Renters Love
Here are a few home improvements that you can make to your newly purchased fixer-upper, to spruce up the property and appeal to potential renters.
As far as interior upgrades go, a tenant will obviously like to see new, clean flooring (especially hardwood), stainless steel appliances, and fresh paint. This often translates into increased rental fees and quick turnaround times. Renters also love to see ample storage space since they'll be moving the majority of their belongings to the property.
Outside, tenants are also most likely to go for a property with great curb appeal. For this reason, it’s also important to put some effort into landscaping. It’s also a good idea to install fencing, where possible, for both aesthetics and safety purposes.
If renovations are in order, you’ll find that working with a general contractor speeds up the process and ensures quality workmanship. Remember, whatever money you invest to make your property more attractive will translate into better tenants and the opportunity to charge a higher price.
Additional Revenue Opportunities
Here are a few more advanced strategies for both selling and renting for additional income opportunities:
Land contract - You can sell your home on a land contract. This basically means that you are the bank. This is a great way to collect monthly payments with interest but you don't need to deal with the maintenance and upkeep of the property.
Vacation rental - Instead of a traditional yearly lease, you can operate a short-term rental property. This can be daily, weekly, or even monthly. You can certainly list on sites like AirBnB or VRBO, but creating your own website and social media postings will give you more control over how your rental is presented. You have the freedom to build your brand here, and you can even create a custom logo that fits your rental aesthetic. Simply use Adobe Spark’s free logo maker for a designer piece that looks like it was made by a pro.
Brittany Fisher has spent more than 20 years as a CPA. She runs her own site, Financiallywell.info where she shares her knowledge about taxes, personal finance and general financial literacy hoping to help anyone who may benefit from it.