If you’re in the business of rehabilitating old properties, you may find yourself faced with a choice: is it really the best idea to sell the property off immediately, or should you offer it as a rental property instead? Boston is a unique market which offers benefits for both options depending on your goal. Each option has a number of advantages and disadvantages, and which choice is better depends on a lot of factors:
If the economy is trending downwards and unemployment is trending up, chances are good that fewer people will have the money and economic security to make a major real estate purchase. During an downturn, the number of people renting instead of buying will increase. Conversely, a strong economy with low unemployment will see more people looking to buy. With interest rates still at the lowest we’ve seen, gas prices still reasonable, coupled with Boston’s great job market… more people are taking the plunge.
Neighborhoods determine the price range for a house and how those houses are used. A property close to a college campus (Boston College, Boston University, Northeastern University) is an excellent site for a rental. A property with a strong neighborhood association, good schools and more family oriented will likely attract more interested buyers than interested renters (Roslindale, Jamaica Plain, Newton, Dedham ).
Costs And Profits
The biggest upside to renting is the fact that you can use a rental property to give yourself a consistent income so long as you can keep all the units full. On the other hand, you’ll also be on the hook for the initial loan and all the other costs of ownership: property taxes, utilities, insurance, and the repair and replacement of major appliances and the building itself. Your funding source has a huge part to do with which option will work best for you. If you utilized hard money and purchased high… it may be imperative you sell because the cost of carrying the note will be detrimental to your business.
While tenants can cover most of the cost, if you are not making a profit at the end of the day… it does not make sense to utilize the property as a rental. If you’ve gone over budget in every aspect of your rehab and you will be at a loss if you were to sell it… maybe it’s time to consider renting it out IF the rents can cover all costs associated with maintaining the property. You should always strive to have good credit so you can refinance out of your funding source into something more traditional.