When you move to a new house, you have what could be an excellent opportunity to build or protect wealth. You could sell the property and take the money, or you might consider renting it out for income. Which is the best choice for your financial growth? Here are a few ways that each choice could boost your bottom line for years to come.
When to Sell Your Property
Take a look at your personal balance sheet first. Are you 'house poor'? This would mean that too many of your assets are tied up in illiquid assets — most notably, real estate — which are hard to draw upon should you need them. Another common problem is being overleveraged, or carrying too much debt. Fix both of these problems by selling to free up cash and/or reduce debt.
Thoroughly research the rental market in your area before making any assumptions about your property's ability to bring in consistent profit. The property should have something special to draw in tenants, including prized amenities, a steady pool of potential renters (such as a university or industry), and a sought-after location.
Keep in mind that being a landlord isn't for everyone. Even though it's touted by many influencers and personal finance gurus, it's not a risk-free or stress-free source of income. If the idea of working with tenants or risking your property, sell the home and move on to an investment more amenable to you.
When to Rent Your Property
How is the housing market in the area? When homes are in demand, you could easily sell your home for more than it's normally worth. But if the market is oversaturated or the economy isn't great, wait for a rebound before selling. In the meantime, rental income will help you cover expenses.
Do you have another source of passive (or largely passive) income? If not, a rental is a great way to build a long-term stream of passive income. Being a landlord takes some work, but you can also minimize it by outsourcing management. And the property could continue to raise income into your retirement or beyond.
Finally, does your portfolio need some diversification? Housing markets run on cycles different from the stock market and other investments. For instance, when the economy turns downward, many people rent rather than buy. This makes rental property a good way to hedge your bets.
Where to Start
Which path is right for your portfolio? Whether you need to diversify, build passive income, de-leverage, or even simplify your portfolio, the best place to begin is with a financial planning consultation. Make an appointment with a financial planning service such as First Investment Corporation today to learn more.