It’s Not Smart To Sell Your Single Family Home Or An Investment Property Just Because Prices Are Up

THERE’S ONLY ONE REASON RIGHT NOW TO JUSTIFY SELLING A PROPERTY THAT COULD PRODUCE RENTAL INCOME

Yes, it’s true, for the most part…housing prices are still very high across the country. If you’re a potential seller, this sounds good. You’ve seen others cashing in over the last couple years and although interest rates have spiked in an effort to slow the market, prices are still up 3% (on average) from a year ago. Selling high is one half of any effective investment strategy, but the other half is important too…and if your goal is to buy low…well, you’re going to need to be patient.

The missing piece to the numbers we see in the news is the reality that overall sales have dropped precipitously. Yes, houses that sell are only averaging 30 days on the market, but there are far less homes for sale (-18.6% compared to a year ago). According to Redfin, the number of homes sold in August 2023 was 14.5% less than in 2022 , which was less than in 2021. Prices are up for houses that are being bought, but the market is changing and it’s not all roses like it was just a couple short years ago. See the table below about Rhode Island’s single family home sales for a clearer understanding of what this market looks like.

LEARN MORE: RHODE ISLAND SINGLE FAMILY HOME SALES COMPARISON (‘23, ‘22, ‘21)

THE ONE GROUP WHO SHOULD ACTUALLY SELL

You should sell your home in the current climate for one reason and one reason only…you were going to sell regardless of the market. Perhaps you’re moving and need to relocate or you’ve been investing for years and you want to cash out and get out of (or reduce your participation in) the game. If your impetus is not the inflated market, then you’re likely selling for the right reason.

LEARN MORE: WHY YOU SHOULD (AND SHOULDN’T) SELL YOUR HOME IN 2023

WHY THIS DOESN’T WORK AS AN INVESTMENT STRATEGY

Selling in this market works as a good exit strategy. However, if your plan it to sell and then reinvest, you’ll need to deal with the same inflated market as a buyer. In addition, if you need financing, you’ll be jumping in when national average mortgage rates are right around 7% (undoubtedly higher than what you’d have on the property you’d be selling). Those elevated rates are supposed to bring housing prices down, but they haven’t really budged in any areas where inventory is still short. Effective investors keep their sights on the long game and selling because of current market prices disrupts that time-tested strategy. But if you don’t sell, what other options are there?

LEARN MORE: WHAT’S GOING ON IN THE ARIZONA HOUSING MARKET?

CASH OUT REFINANCE

Admittedly, this is much better advice two years ago than it is today because of the aforementioned interest rates. However, if you’re looking for cash in hand and can afford the increased mortgage for a couple years (until interest rates comes down and you can refinance), we’d argue that having some money in hand along with your asset, is better than having more money in hand without the asset. Again, with an eye toward the long term, the key here is that you still own a property that will continue to build equity going forward. If you sell, you need to find a new avenue for that growth…and real estate options are limited at best.

BEST OPTION: HOLD IT AND RENT IT

There was a pandemic and real estate adjacent industries closed or slowed down; New housing decreased, housing material prices increased, and it became more difficult to add housing across the country; demand for housing increased as pandemic restrictions were lifted but there was no supply to meet that demand; housing prices skyrocketed; inflation increased as well and the Fed spiked interest rates to try to decrease prices and slow down the market…this is a story we all know, but the direction of the cause and effect that we often skip goes like this…

Housing prices skyrocketed; monthly mortgage expenses for owners skyrocketed as well so buyers of rental properties had to raise their rent prices to meet these inflated mortgage prices; rental market prices inflated across the board and although housing prices are high, rent rolls have increased with them.

What does this mean when we come back to the long term strategy and the goal of keeping assets in our possession? Yes, you can get a pretty penny if you sell your property, but you can also get a pretty penny if you rent it and you’ll still possess your money making asset going forward.

LEARN MORE: RENTS HAVE SKYROCKETED…ARE LANDLORDS THE BAD GUYS???

I’M NOT INTERESTED OR AVAILABLE TO HANDLE RENTAL PROPERTY

That’s not a problem. There are nearly 300,000 property management companies in the United States. These professionals provide leasing, maintenance, and management services for rentals so property owners don’t need to. In the same way a financial advisor or money manager might take care of your retirement accounts, there are professionals across the country skilled in maximizing value and profits for property owners.

Of note, most of the services they provide are tax deductible and typically cost about 8-10% of rental income. Across the five states that Nexus Property Management® currently operates in, we’re fielding more and more calls from owners who are choosing to rent out their single family homes for the first time. Our Natick, MA and Tempe, AZ offices have seen the most dramatic spikes and the trend is likely here to stay until the market steadies. Contact one of our offices or an experienced property manager near you to learn more.

LEARN MORE: REAL ESTATE SHOULD BE INTRODUCED IN HIGH SCHOOL AS A CAREER PATH

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Mick Lefort is the General Manager of Nexus' New Haven County Franchise Office and the Vice President of Operations for Nexus Property Management®, a National Property Management Franchise that manages all types of rental property from single family homes or condos to large apartment buildings and complexes.

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