Hello. Abe Safa here with Century 21 Harrelson Group in Myrtle Beach, South Carolina. Hope you are well.
"When should I sell my rental property?" That question is pretty vague. It could be taken into a lot of … It can have a lot of different meanings based on the context that it's asked in. For this particular video we're going to focus on … it's in the context of, "Hey, I've got a rental property that I've got rented out there. I'm debating whether I want to sell it or not. Should I keep it or sell it? What do you recommend?"
Within that context, to me it's a very simple formula. And unfortunately, you don't get this from a lot of agents because a lot of times agents are going to say, "Yes, let's sell it. Let's get your money out," blah blah blah. Here's what I look at when it comes to a property like that. First of all, it's an investment. So, we've got to become detached from it's a house, it's a condo. I've owned it for so long. You got to forget all those things. It's an investment. That's all it is. So, what you want to look at ... and I help my clients go through this. We actually look at the numbers.
Okay. Do you have a mortgage? Number one. How much equity is in the property? Number two. Does your renter pay on time? What kind of rent do you charge? We look at all these different variables and look at how much rent it generates, look at all your expenses, meaning mortgage, your property taxes, which as an investment property are going to be pretty significantly higher than they would if it was a primary residence. How much rent do you collect? Are they on time when they pay rent? And what's your HOA dues and other expenses?
We look at all that data and at the end of the day what we're trying to figure out is what is your net on that investment? Meaning that you owe … Let's just say it's worth $150,000. You're collecting rent. We subtract the expenses, subtract the HOA dues, which are significantly higher usually if it's a condo, and then see what that number is. And we look as a net number what percentage it is of what the property's worth. To us, that's your return on investment so when we look at that number, the next thing we look at is … Okay, if you were to sell this property, what would you do? If you have a better investment, if you have a better use for your money where you could take that cash out, put it into somewhere else and get a better return on investment, then to me it's a no-brainer as long as you detach and look at it as purely as an investment.
Simple formula. What's your return on investment currently? If I took that cash out, could I do something better is going to be a simple formula that we use in most cases. Now, there's other variables that come into play depending on what we think is going to happen with the market. Do we think prices are appreciating or depreciating? Is there a better use as far as if I took this money out of this one particular investment/rental property and then bought something else in a market that might be a better long-term play? Things like that we can look into as well, but we've got to get past that first question: Is this a good investment? Are you getting a good enough return on investment? Or, is there a better opportunity for you there?
That should answer the case for most of you. You can run your numbers and see what kind of return you get. Make sure you look at the net number. Make sure you subtract out roughly 10% to cover repairs and expenses and things like that because things will happen, whether it's the HVAC system, whether it's new flooring. Things like that will happen. So, run those numbers, see what you think. I'm here to answer any question that you might have and be able to guide you any direction that you need. 843-360-2145.