A few weeks ago I was speaking to potential home sellers. They are expecting a relatively short term job assignment, 3 years at most, and will be coming back to their hometown after the assignment. They are trying to decide if they should sell their home now or rent it out. It’s a fairly typical situation that carries a big degree of angst.
With recent upgrades costing about $12K and knowing current market values in their neighborhood, the potential sale price is not exciting. They would still get considerable money in their pocket, but, of course, not as much as hoped. Right now, the home is in beautiful condition, shows very well and should sell in a reasonable listing period.
Not owning a crystal ball, how does one estimate future home values? These days even a continuous stabilization of prices would be welcome, so an optimistic guess for the next 3 years, in total, might be...4%?
Thus enters the rental consideration. Not having been landlords, they would hire a property management company, costing them 8-10% of the rental income for services. Estimated rental income on the home would cover the cost of their mortgage, insurance, taxes and the property management fees, with about $120 a month extra coming their way. So far the rental option seems reasonable.
Now enter other factors to the rental puzzle. How much extra will it cost to have the yards maintained? Would the tenants do the work? Will they leave the walls the same color? Will the kids put things down the drains? How much wear and tear will be incurred in 3 years? How much should they put aside for any vacancy period? How much to set aside for regular maintenance costs? The list of items, and the costs grow longer.
So in 3 years, upon their return…where will the market be, and what type of condition will their currently beautiful home be in? It is likely, not as saleable or as lovely as it is now. The recent upgrades will no longer be new. Carpeting will have more wear. Maybe appliances or other items will need replacement. Did the management company handle them well?Financially, the money issue could be a wash, or without that hoped for growth in value, loss.
My suggestion to them? Give serious thought to the following: Do they love the property enough to move back in 3 years? Will it still fit their needs? Are they up for remodeling again? What is the trend in the neighborhood? Are there other areas in town they might want to explore? Was this their dream home? Can you ever really go back?
So far, no decision yet, its a very tough call. But they know the decision must come soon.
