Land lording is tough and it definitely has its moments. I’ve been there and know your pain. Over the last 7 years I’ve had renters break the lease and move out in the middle of the night, hoarders that leave the property full of trash, and younger tenants who love to punch holes in the walls. I think it’s safe to say that I’ve seen it all.
I’ve compiled a few questions that you should ask yourself before you start your land lording journey. If you don’t have the right answers then you should stop where you are and find the answers. Sometimes that means that you need to sell the house and regroup.
Are you really going to produce a profit?
Yes, you might have equity in the home when you make the purchase but you shouldn’t forget that selling real estate has a high transaction cost. If you look at the median home price and factor in commissions and concessions then you’re looking at a $10,000 transaction fee.
Real Estate Transaction Fees
- Buyer’s commission
- Seller’s commission
- Closing costs
- Needed repairs
More than likely your equity that you thought you had is gone at this point.
For instance, in the event you’re losing $100/month, that is $1200/year. It’d take 33 years, in case it costs you $40,000 to get rid of it. That is lots of “additional” price that will need to seem to make it worth the $40k!
Are you searching for payout or cash flow?
Flexibility should be a requirement in your strategy. If you don’t have a flexible strategy then I’d put in the time today to develop one. Keep in mind that your strategy today will be different 2 years from now and that’s okay.
Have you got a better place to invest the net income?
Here’s the tough question that most don’t have the answer to. What are you really going to do with the cash? I could liquidate all of my properties today and have a nice chunk of money but the cash would turn into a headache fairly quickly. Think about it… where can you invest your cash for the same or better returns then you’re getting today. If you don’t have a great investment then why are you in a big rush to sell? Be sure to have your next investment or investments in line before you hit the sell button.
A great way to sell your property is to work with another investor. This saves you time and money, plus it gives you flexibility in lining up other investments.
Is the place appreciating or depreciating?
The answer to this one is easy. If you’re local market is losing value then you need to hit the exits. It’s okay to panic as long as you’re the first one out the door.
Look at your marketplace and determine if the economy is growing or shrinking. It’s that simple.
What To Do…
I’m a buy and hold investor that loves cash flow. If you need help structuring a purchase or sale of a property then let’s connect.
Let’s take a look at all of your options and come up with a plan that works for you.