SterlingResidential.com | Buying & Selling Residential Properties in Texas | Houses for Rent Houston Area | Humble Atascocita Kingwood & Spring Texas Realtors | Sterling Residential®, Realtors® | Real Estate Broker: Rent or Sell Your Residential Property?

One thing more expensive than a vacant house is a bad tenant, so when asking the rent-versus-sell question, renting isn’t a “fix it and forget it” proposition. Tenant relations and property management are an ongoing process that begins when you place your house for rent and ends after your tenants move out. Additionally, there are financial considerations — do you need to access your equity and do you have reserves to handle cash flow shortages?

First, can you afford to rent your property? To answer that, you’ll need to determine if you cash inflows will cover your outflows. Ask a Realtor for rental comparables, then do some simple calculations to determine if the rent will cover your costs. You’ll want to budget for maintenance costs and touch up repairs necessary when you sell.

Renting can change your property tax status, eliminating your Texas Homestead Exemption, removing your IRS exclusion on gains, and increasing your expenses. Talk to your insurance agent and get a revised quote for a rental property, increasing your liability coverage if possible. Compare your expenses against the anticipated rents and determine if renting makes sense.

Second, who is going to actively manage your property? If you’re moving out of town, you should consider hiring a management company to look after your investment. A friend or neighbor may be able to keep an eye on things, but they’re not going have a management agreement giving them authority to resolve any disputes or management issues.

Like selling, renting doesn’t happen overnight, and without a ready tenant, you’ll need to consider budgeting for one or two months of vacancy depending on the market. If you hire a broker to list the rental, or a company to manage the property, you’ll need to budget for those additional expenses — while broker fees are negotiable as required by law, the typical broker fee is equal to one month’s rent in the Houston market, and mangement company fees can run up to 10 percent of the total annual rents.

Considering these additional costs, most private investors only rent for the long term (12 months or more) to spread those fees across the entire year. If you’re willing to market and manage your own property and screen your own tenant prospects, you can save a few hundred dollars each rental year.

Once you’ve evaluated rents and costs, compare that to your selling prospects. Ask a Realtor for a Comparative Market Analysis, comparing this year’s market to last year’s. Compare the average selling prices and days on market to note any trends and evaluate how your property stacks up to the competition.

With the sales comparables in hand, you can determine today’s estimated sales price and calculate your net by deducting your loan balance, selling expenses, and closing costs — don’t forget to add the expenses you’ll incur while you wait for a buyer. Looking ahead, you’ll need to evaluate your selling prospects at the end of the lease term and decide if there’s enough upside to wait and sell later, taking into account the anticipated rents and costs you calculated earlier.

Any prospective seller or landlord can see, there’s a lot to consider in the rent-versus-sell decision — and the right answer varies by person. With a bit of research, you can assemble the numbers to help you make the most informed decision. After that, it’s really a question of preference —- do you want to be a landlord or not?

Read More About Texas Landlord Requirements
Prospective landlords should familiarize themselves with the Texas Property Code Title 8 Chapters 91 & 92 and the Texas Landlords and Tenants Guide.

If you’re interested in becoming a investor landlord, Amazon.com has some good titles on the subject including Every Landlord’s Legal Guide and Property Mangement for Dummies.